Two things above all: Brexit is excellent news for Europe and the world, and the overnight market panic is overdone and not a sign of economic trouble to come. Brexit is the most important European event since The Wall came down in ’89. It also marks one of the all-time greatest no-clothes events in history.

  • German-dominated One Europe has been a stark-naked failure for a decade, the euro a disaster.
  • The corruption of One Europe and its fellow travelers showed in the last two weeks, creating Brexit votes by the million.
  • It is possible that Brexit will yank the pants off other follies, with economic effect, but not here. Next week, we’ll be back to watching payroll numbers and handicapping the Fed.

Two things above all: Brexit is excellent news for Europe and the world, and the overnight market panic is overdone and not a sign of economic trouble to come.

Markets first.

How could markets get Brexit so wrong?

Just as the ballot tally began last night, the U.S. 10-year T-note rose to 1.75 percent, along with global stocks and commodities in belief that Brexit would fail. Now 1.55 percent.

The mortgage follow-through is muted, making 3.50 percent from 3.625 percent yesterday: In a panic, global money runs to Treasurys, not mortgage-backed securities (MBSs).

Brexit is the most important European event since The Wall came down in ’89. It also marks one of the all-time greatest no-clothes events in history.

German-dominated One Europe has been a stark-naked failure for a decade, the euro a disaster — and everyone has known. But to say so has branded the speaker a xenophobic trog.

How could markets get this so wrong?

Bookies confessed last week that their cash inflow had been as much as 95 percent “Remain,” forcing long odds that way. Polling showed the move toward Brexit last week.

No-clothes breeds complacency in markets as well as chancelleries. Ten years of watching Europe wreck itself financially, but without consequences…the European Central Bank will think of something. Again. Right? Eh?

The last two weeks created Brexit votes by the million

The corruption of One Europe and its fellow travelers showed in the last two weeks, creating Brexit votes by the million.

Wolfgang Schauble, German finance minister, butcher of Greece and Doctor Strangelove redux, thought it wise to threaten Britain: “In is in, out is out.”

How clever. Leave and we’ll force you to do as we say, or stay and do as we say. Wolfgang, old boy, was the Iron Curtain to keep people out or in?

Adding to Schauble’s threats in the last two weeks: Prime Minister David Cameron and his awful Chancellor of Exchequer, Osborne; Merkel, Hollande, German toady in Brussels Jean-Claude Juncker, and incredibly, Barack Obama — who has spent his second term negotiating two trade deals, which have not one single shot in hell of passage.

Threaten us, will you? You could not take this island with your Luftwaffe, and now you think your bureaucrats can do the job? The lot of you, bloody well bugger off!

The one-world, One Europe goo-goos are busy rolling out straw men.

Their first claim: Brexit is just about immigration, a racist vote for isolation.

Here in the U.S. we have a serious policy division about immigration and our demagogues, but the decisions will be made in our Congress. How would you feel if U.S. immigration decisions were made in Montreal, Buenos Aires or by the UN?

Why markets will rebound

Markets will rebound. It will take a few days for them to get a good read.

One Europe is hardly the only pretense out there (China, Japan…). Step on one banana peel, be over-anxious for a time.

Measurements ahead: will Brexit catalyze other European escapes? Or might the remaining prisoners unite with the guards for favors? Might this begin the end of the euro? How much actual economic damage will result?

That will depend on the degree of vindictiveness by Europe. A free-trade zone was a good idea, growing from the Common Market. One (German) Europe? Hardly.

Britain will face rebellion in Scotland and Ulster, who hold legitimate grievances but are overdue to move beyond Culloden, Bonnie Prince Charlie and The Boyne. When this is over, the UK and Ireland may well be closer.

Ireland has a splendid economic recovery going despite being on the euro, spurred by tax policies, which Europe intends to squash into conformance with the Continent — Ireland too small for Brussels to bother so far. Britain will enhance its status as a safe haven and one of the few places on Earth where a deal is a deal, enforceable in court and undisturbed by bureaucrats.

What about interest rates in the U.S.?

U.S. interest rates, economy, the Fed — all of that is determined here.

It is possible that Brexit will yank the pants off other follies, with economic effect, but not here. Next week, we’ll be back to watching payroll numbers and handicapping the Fed.

Nothing is more economically corrosive than pretense. Nothing is more enabling than realism and clarity.

Anti-government types misunderstand: pretense is not a requirement of government, but an option.

Good news today. Very good news, indeed.

The 10-year T-note Friday morning, showing trading in the last year, this week’s hysterics barely on-screen.

The 10-year T-note Friday morning, showing trading in the last year, this week’s hysterics barely on-screen.

The 10-year T-note Friday morning, showing trading in the last year, this week’s hysterics barely on-screen.

The 10-year T-note in the last 10 days. You can see the first Brexit tremor last Thursday

The 10-year T-note in the last 10 days. You can see the first Brexit tremor last Thursday

The 10-year T-note in the last 10 days. Great chart! You can see the first Brexit tremor last Thursday, then the overconfident run-up (also a natural rebound from a new-near-record low), and this morning. :-) At midday NYC, the panic-reversal upward still underway.

The Fed-sensitive 2-year T-note will bear watching, once the panic settles, the Fed still likely to hike 0.25 percent this fall.

The Fed-sensitive 2-year T-note will bear watching, once the panic settles, the Fed still likely to hike 0.25 percent this fall.

The Fed-sensitive 2-year T-note will bear watching, once the panic settles, the Fed still likely to hike 0.25 percent this fall. Note little panic here, no anticipation of Fed reversal to easing.

One of the better pieces of evidence of euro-failure: individual sovereign-nation debt has migrated back to local banks.

One of the better pieces of evidence of euro-failure: individual sovereign-nation debt has migrated back to local banks.

One of the better pieces of evidence of euro-failure: individual sovereign-nation debt has migrated back to local banks. Ten years ago there was a healthy cross-border trade in euro-sovereigns. This move back to local holding has been stark anticipation of ultimate breakup.

Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.

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