There are many moving parts now that the UK has voted to leave the European Union, and many unanswered questions about what the future will hold. One group that is being proactive about their concerns are British expats who live in Belgium.
Belgium has experienced a surge in citizenship requests from British expats looking for ways to continue to live and work in Brussels after the referendum result. As RT reports, Belgium is home to around 24,000 British expats who primarily work for EU institutions and NATO, which are located in Brussels.
As RT explains, there are 1.3 million British citizens residing in other EU countries, and the volume of citizenship requests around the EU could be enormous.
Just to grasp the full extent of the possible hike in citizenship requests – there are a total of 1.3 million British citizens residing in other EU countries. Lines form early in the morning at information offices in Brussels, which is at the center of the surge, as Brits appear willing to wait to find out how to become Belgian citizens.
“It doesn't stop. Some have been queuing up for information since 7.30 this morning,” said the mayor of Brussels’ Ixelles district, Dominique Dufourny.
In the last few days, Ixelles alone has seen about 40 people show up to get the documents required to acquire Belgian citizenship.
Other districts in the city are reporting a similar trend. The suburbs of Uccle and Woluwe Saint Lambert both said they have had around 50 inquiries.
“Normally we rarely have anybody requesting information about citizenship,” said a spokeswoman for Woluwe Saint Lambert. “Since Friday there has been an explosion.”
Belgium requires people to have lived and worked in the country for over five years to be eligible for citizenship, and applicants must also be able to speak one of the state's official languages: Dutch, French, or German. Unemployed applicants need to have 10 years of Belgian residency and community ties according to RT.
Dennis Landsbert-Noon is in the process of applying, and hopes to remain employed in order to keep his wife and children in Belgium because he believes that Brexit will ruin the UK.
"I believe that the consequences of Brexit on Britain will be catastrophic in both the short and long term and I do not want to condemn my children to belong solely to a nation that is on the road to ruin. I've heard from a lot of people who say they are doing the same thing as well." Dennis said.
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It will be interesting to see how EU nations respond to the expected surge in requests. If people are looking to Jean-Claude Juncker as an example to follow, it's going to be a long and difficult process for all of the expats, as it's hard to reason with children.
The Waterloo commune house was full of people from the UK asking about acquiring Belgian citizenship today…
When Derrick Deanda spotted a family trapped in an overturned SUV in California, he stopped his own vehicle, got out, smashed a window on the SUV, and helped the occupants out. When paramedics arrived later to check everyone out, they checked Deanda’s blood pressure and gave him a bottle of water. He later received a $143 bill from the Cosumnes Community Services District for those services.
Last Thursday, the people of Britain voted in a referendum to leave the European Union (EU). Most commentators view Britain’s exit (“Brexit”) from the European Union as bad news for economic growth in the UK and the eurozone. As a result, it is argued, the growth rate in the rest of the world will be also badly affected.
It is more likely that, whether the pace of real economic growth over time will weaken or strengthen is going to be set by the pace of expansion in the pool of real wealth.
A strengthening in the pace of economic growth implies a strengthening in the rate of growth of the pool of real wealth. Conversely, a weakening in the pace of economic growth implies a weakening in the rate of growth of the pool of real wealth.
The ability of an economy to generate a rising rate of growth of the pool of real wealth is determined by the ongoing expansion and the enhancement of the infrastructure. This permits the increase in the rate of growth of the production of goods and services to support people’s life and well-being.
The key for this is an ongoing allocation of some portions of real wealth toward the formation of capital goods (i.e., the enhancement and the expansion of the infrastructure).
NB: The allocation of real wealth here means that a portion of real wealth is channeled toward the activities that are engaged in the expansion and the enhancement of the infrastructure.
Now, if real wealth were to be directed toward the production of final goods and services only — while an inadequate amount is allocated toward the expansion and the enhancement of the infrastructure — this will amount to a consumption of capital.
Over time this is going to undermine the economy’s ability to pursue rising economic growth. In fact a prolonged neglect to allocate a sufficient amount of wealth toward the enhancement and the expansion of the infrastructure is likely to result in a stagnant or even in a declining pool of real wealth over time. This means stagnant or declining real economic growth — a fall in people’s living standard.
How Will Brexit Affect the Wealth Generation Process?
If the process of wealth generation is currently in good shape then Britain’s exit from the EU shouldn’t have any negative effect on real economic growth. This, however, might not be the case.
It is likely that the reckless monetary policy of central banks in the UK and the eurozone has inflicted a severe damage to the process of real wealth formation.
Loose monetary policies (i.e., monetary pumping and the artificial lowering of interest rates) sets in motion the diversion of real wealth from wealth generators toward non-wealth generating activities. This in turn over time weakens wealth generators ability to expand the pool of real wealth.
Since the 2008 financial crisis, following the lead of the US central bank, the central banks in the UK and the eurozone have aggressively lowered interest rates and pushed monetary liquidity to the banking system.
In the UK, the central bank policy rate was lowered from 5% in January 2008 to 0.5% currently. In the eurozone the policy rate was lowered from 4.25% in July 2008 to 0% at present.
The yearly growth rate of the Bank of England balance sheet jumped from 22.2% in January 2008 to 163.8% by October of that year. The yearly growth rate of the European Central Bank balance sheet jumped from 15.3% in January 2008 to 55.1% by November of that year.
Unfortunately it is not possible to establish the magnitude of the damage that these loose monetary policies have inflicted on the process of real wealth formation. (It is not possible to calculate the size of the pool of real wealth since we cannot establish the total of various heterogeneous goods and services.)
We suggest that in the event of a plunge in real economic growth, this is going to happen not on account of the Brexit but in response to the severe damage that previous reckless monetary policies have inflicted to the process of real wealth formation.
In response to the Brexit, it is also highly likely that both the UK and the eurozone central banks will be ready to push more money in order to “keep” real economic growth going, thereby inflicting further damage to the wealth generating process.
Also, the current highly regulated EU centralized economic framework is restrictive toward opening up markets, promoting free trade and ultimately economic growth. In this respect BREXIT, which is an act of decentralization will provide more scope for competitive markets and hence should be an agent for economic growth.
Real GDP and Economic Growth
The popular way of thinking assesses economic growth in terms of so called real GDP. I have noted elsewhere that the whole concept of GDP is a hollow one.
Changes in the so-called real GDP are in fact depicting changes in money supply. Consequently, fluctuations in the growth rate of money supply are manifested in the fluctuations of the real GDP.
Based on the lagged growth rate of money supply it is likely that the yearly growth rate of UK real GDP is forecast to close at 3.5% by Q4 from 2% in Q1. By Q4 next year the yearly growth rate is forecast to climb to 4%.
For the eurozone, I forecast the yearly growth rate of 3.6% by Q4 versus 2% in Q1. For the Q4 next year the growth rate is forecast to settle at 4.3%.
We can thus conclude that based on the lagged money supply growth rate it is quite likely that we could have a strengthening in the growth momentum of real GDP in both the UK and the eurozone.
In terms of true real economic growth the likely acceleration in the monetary pumping by central banks is going to undermine further the process of real wealth formation.
As long as the pool of real wealth is still holding, central bank policymakers could get away with the myth that they can grow the economy. Once the pool starts to stagnate or to decline, the myth that central banks can grow an economy is shattered.
One could only hope that notwithstanding central banks damaging policies wealth generators could keep the pool of wealth growing.
Imagine having a job where you didn't actually show up for 15 years, but you continued to get paid – that would be a pretty amazing gig wouldn't it? Well, as it turns out, two guys in Jerez, Spain actually pulled that off.
Two men, a chauffeur and a gardener, have been collecting full pay from Jerez city council in Andalucia without putting in a single shift for the council, as part of an apparent deal with local unions.
According to the Telegraph, as registered representatives for the CGT union, the two men have the right to divide their time between their jobs and union activities, however when the council's human resources department carried out a recent audit, it found that the pair had not clocked in a single day in 2015 or 2016. Furthermore, upon contacting the two men to inquire about the findings, they said that they had not gone to work since 2001! The reason given was that the men had a "tacit deal" between the council and the union.
One has returned to work, but his union colleague presented a letter "demonstrating that he was using the accumulation of union hours not taken up by other reps."
The CGT union leader in Jerez, Juan Gonzalez, said the council's probe was a frontal attack on union freedom", and pointed out that union hours could legally be transferred between representatives, saying "we have 15 reps and each has 40 hours a month for union work. According to the agreement, these hours are not personalized but accumulative, and these colleagues have accumulated the hours that others did not use." – that's a lot of union activities to be sure.
Jerez is one of Spain's most indebted local governments, owing half a billion euros to the banks the Telegraph notes. It's all good, what's a few more headcount to cover when Draghi is buying all of the debt in Europe anyway, right?
The council is also investigating three other workers suspected of taking unjustifiable amounts of leave to perform union duties. Jerez is not alone however, in February it was revealed that nearby Cadiz city hall had a had a phantom civil servant on its payroll who had not been seen at work for six years.
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There really isn't much else to say except that this is good work if you can get it. It reminds us of Milton from Office space who continued to get paid due to a glitch in the payroll after he was laid off… except Milton actually kept showing up for work.
“You’re only supposed to blow the bloody doors off!”
That one line, spoken on the big screen by Michael Caine was crowned, according to a 2003 Daily Telegraph survey, Britain’s favorite one-liner of film. That kind of staying power is remarkable considering The Italian Job, the original that is, was released in 1969, two years before Mark Wahlberg, who portrayed Caine’s character, Charlie Croker, in the movie’s 2003 remake, made his 1971 debut.
As for the film’s American version and one-liners, the crown for favorite was won when Charlie’s 2003 on-screen nemesis Steve taunted: “You blew the best thing you had going for you. You blew the element of surprise.” Charlie’s reaction? A knock-out punch followed seamlessly by the understated comeback, “Surprised?”
The element of surprise was on full display in the hours and days that followed Britain’s voters’ decisive move to Leave the EU. The Brexit referendum succeeded in blowing off a different set of doors, leaving taunting politicians and policymakers alike flat-footed, with a whole new fear, that of contagion, beginning to the south in Italy. Might the Italians pull of a Job of their own, following Great Britain’s lead in stealing back their own country?
The hope, stated diplomatically by Gluskin Sheff’s inimitable David Rosenberg, a dear friend, is that Brexit will prove to be a, “wakeup call for the long-awaited fundamental changes with regards to the EU – make it more democratic and make it less bureaucratic and embark on immigration rules that do not sacrifice regional security.”
Rosenberg’s concerns on security are more than justified in the case of Italy. According to the Italian Coast Guards’ latest tally, the 3,324 migrants rescued June 26 brought the total rescued in just four days to 10,000. Four days! Calm seas have triggered fresh waves of migrants, bringing the total thus far this year to 66,000. The forecast calls for 10,000 more to arrive every week until year’s end. Some 300,000 in total for 2016. The ease with which migrants can cross the seas to Italy means that country takes in 13 to 14 times more than Turkey and Greece. Is it any wonder Italians are exhausted?
At a Brussels Summit, EU leaders were urged to “speed up and increase” the return of migrants deemed to not be bona-fide refugees. In actuality, many making the crossing are simply looking for economic opportunity rather than escaping any real danger. Estimates vary, but only between six and 19 percent of those ordered back to their home countries actually leave. It is patently apparent that the EU does not have sufficient measures in place to combat the problem on behalf of its disgruntled member nations, and must become much more vigilant in its approach.
As economically and culturally debilitating as the migrant crisis has become, it’s critical to take a step back from this particular issue to understand the depth of Italy’s economic plight. The reality is, there’s something greater than just poorly managed migration underlying the unrest in Italy and its EU neighbors.
While the migrant crisis clearly played into Brexit, the vote revealed much deeper anxieties driven by a very visible fact of British life, especially life after the financial crisis. The briefest of visits to the City of London, its streets lined with chauffeured Mercedes, offers ample prima facie evidence of what so many Brits know in their bones – that the distance between “them” and “the rest of us” has grown since the crisis broke.
The average Brit knows they didn’t wake up yesterday ripe to pillory the “elite,” a word that’s crept back into the vernacular like a slowly spreading disease. But they do know they’re not among those who have risen to the creamy top in recent years but have rather been demoted to the ranks of those left behind.
The fairy tale of the wealth effect, that what is good for those at the top of the pecking order is good for the masses, is apparently an international phenomenon. The one saving grace on this count is the British never succumbed to pressure to join single currency. That, however, is certainly not the case for the beleaguered Italians.
Back in the summer of 2012, when Greece appeared poised to leave the EU and escape the euro currency via devaluation of the drachma, Merrill Lynch released a report ranking the countries who stood the most to gain economically from dropping the euro. Can you guess who came in at the top spot?
More than any of its peers, the Italian economy has suffered since joining the euro in 1999. Since 2007, its economy has contracted by 10 percent and suffered not one, not two, but three recessions. Competitive export-led growth has been deeply impaired by virtue of Italy’s being effectively yoked to the massive German economy.
Despite the rise of China, Germany has been able to maintain its top three ranking among world exporters. The secret weapon? That would be the euro. In 1998, the year before Germany switched to the euro, the country exported $540 billion. By 2015, that figure had swelled to $1.3 trillion. Italy’s exports have also grown, but not nearly as robustly, coming in last year at $459 billion compared to $242 billion the year before it joined the euro.
Just as it once was the case with China, Germany benefits from its relatively weak currency. If Germany was not tethered to its weaker-economy neighbors and was still on the Deutsche Mark, it would have a significantly stronger currency and substantially lower exports due to the price of its exports being much more expensive for world markets.
Back in 2011, UBS put pencil to paper and figured that losing the common currency would trigger an immediate effective tax increase for the average German citizen of about €7,000 and between €3,500 to €4,000 euros every single year going forward. By contrast, swallowing half the debt of Greece, Ireland and Portugal at that time would have generated a little over €1,000 tab per citizen. Now you see why bailing out is so easy to do, though the Germans do put on a great show of irritation at having to foot such bills. But let’s be honest. Consider the alternative.
Reverse that effect and, with all else being equal, you begin to appreciate why Italy’s exports have become relatively more expensive, burdened as they are with a more expensive currency than they would have had. Consider that globalization had already done a number on the country’s once magnificent industrial base when Italy opted into the euro and left the lire behind. Since then, the country’s industrial capacity has been further decimated, shrinking by 15 percent. To take but one example, in 2007, Italy manufactured 24 million appliances; by 2012 it had declined to 13 million.
Add up the economic consequences and you begin to understand why Italian unemployment is running north of 12 percent while putting four-in-ten young Italians are out of work. To the Italians, if anyone’s managed to pull off a Job, it’s those smug Germans.
Three years ago, the Merrill report warned that Italy’s current account deficit would be an impediment to returning to the lire in that the deficit required foreign capital to keep current on its bills. Flash forward three years and Italy is running a current account surplus of 1.9 percent, a fairly recent phenomenon and more a reflection of its economic atrophy than a competitive trade position. Nevertheless, that is one obstacle to leaving the euro that’s disappeared.
That is not to say that Italy will be able to ride off into some glowing economic sunset. Italy’s banks are thought to be the Continent’s weakest. There are $408 billion in past due loans sitting on Italian bank balance sheets. Investors value these loans at 20-30 cents on the dollar if they are secured, and as little as 5 cents if they are unsecured while banks have marked them at between 50-65 cents on the dollar.
The yawning gap between market pricing and that of Italy’s banks is reminiscent of how unrealistically Lehman valued its loans before going under. Unicredit, Italy’s largest bank, has seen its stock price halved this year as investors worry its capital is insufficient to handle the Brexit fallout.
Leaving the EU and being unshackled from the euro could well lead to an Italian debt default, which is meaningful given Italy is the third largest sovereign debt market in the world. But local laws also provide plenty of leeway for the government to restructure its debts without triggering a default. The one thing that is not in doubt is that the lire would provide the Italians with the relief they have so desperately needed since joining the single currency.
On the flipside, the damage to Germany’s manufacturing sector could be sufficient to catalyze a Continental recession. Angela Merkel has probably lost considerable sleep being a unified Europe is her treasured baby. In all, Germany’s annual economic growth is boosted by a half-percentage point courtesy of its euro membership.
While there is no denying the economic challenges facing Italy, the potential for its exiting the EU was hugely increased by the Brexit. After all, some 58% of Italians were already calling for a referendum vote. If those voters are angry today, imagine how much angrier they will be if the Brexit throws Europe into a recession that Mario Draghi cannot effectively battle given that he already has his stimulus measures running full throttle.
Tellingly, the anti-establishment Five Star Movement, which has risen rapidly in power in recent months, has not called for a referendum to leave the EU, but rather to get rid of the euro. Beppe Grillo, the stand-up comedian who founded the party said the Brexit, “sanctions the failure of EU policies based on austerity and the selfishness of member States, which are incapable of being a community.” Yes, Stunad, it really is about the economy.
The shame is Italy is its own bureaucratic basket case with little rule of law (think Mafia, tax avoidance and the impossibility of legislating anything from theory into practice). Brexit has lowered the odds Matteo Renzi’s government will stand the test of time and last until October, the date by which his referendum to streamline Italy’s bloated government must be taken up by the Italian electorate.
Even if Renzi stands, Italy’s future in the EU looks to be at risk. The collapse in bank shares in the trading days following the Brexit has created an immediate crisis. Within 72 hours of the vote results, Italy was reported to be preparing a €40 billion rescue of its financial system. A direct recapitalization of the banks, funded by a special bond issue was on the table. But the Italians are also pleading for a moratorium of ‘bail-in’ rules and bondholder write-downs, both of which are prohibited under existing EU laws.
Hate to go out on any limbs here, but odds are pretty good that those rules will be relaxed, all things considered.
How on earth did things go so wrong? Could it be as simple as power-mongering and greed? To rob a line from the 2003 Italian Job, “There are two kinds of thieves in this world: The ones who steal to enrich their lives, and those who steal to define their lives.” Could it be that average working Italians, especially those who have been around for a good long while, feel as if they’ve been victims of both of the two kinds of theft, doubly wronged? “Basta!” their voices scream in defiance. Enough is enough!
Almost two months after it happened, the Associated Press is reporting that a driver in Tesla S model car who was apparently riding it in “autopilot” mode was killed when his car crashed into a tractor trailer on a highway in Florida. The truck driver claims that the driver was “playing Harry Potter on the TV screen” at the time of the crash and driving so quickly that “he went so fast through my trailer I didn’t see him.” There are reasons to doubt that account as Tesla Motors notes that it not possible to watch videos on the Model S touch screen. According to the AP, investigators believe that the car’s cameras “failed to distinguish the white side of a turning tractor-trailer from a brightly lit sky and didn’t automatically activate its brakes.”
The current version of Tesla’s Autopilot reminds drivers to keep their hands on the wheel and remain alert at all times. This is the first known death in over 130 million miles of Tesla Autopilot operation. For reference, the Insurance Institute for Highway Safety calculates that in the U.S. there are 1.08 deaths per 100 million vehicle miles traveled. As I reported in my Reason June feature article, “Will Politicians Block Our Driverlesss Future?,” a Virginia Tech Transportation Institute study commissioned by Google estimated in January 2016 that human-driven vehicles crash 4.2 times per million miles traveled whereas current self-driving cars crash 3.2 times per million miles, a safety record that’s likely to keep improving as robocars gain more real life experience on the roads.
Demanding that self-driving vehicles be perfect in comparison to human-driven vehicles is clearly not the right standard. Better is more than good enough.
Democracy no longer exists in the West. In the US, powerful private interest groups, such as the military-security complex, Wall Street, the Israel Lobby, agribusiness and the extractive industries of energy, timber and mining, have long exercised more control over government than the people. But now even the semblance of democracy has been abandoned.
In the US Donald Trump has won the Republican presidential nomination. However, Republican convention delegates are plotting to deny Trump the nomination that the people have voted him. The Republican political establishment is showing an unwillingness to accept democratic outcomes.
The people chose, but their choice is unacceptable to the establishment which intends to substitute its choice for the people’s choice.
Do you remember Dominic Strauss-Kahn? Strauss-Kahn is the Frenchman who was head of the IMF and, according to polls, the likely next president of France. He said something that sounded too favorable toward the Greek people. This concerned powerful banking interests who worried that he might get in the way of their plunder of Greece, Portugal, Spain, and Italy. A hotel maid appeared who accused him of rape. He was arrested and held without bail. After the police and prosecutors had made fools of themselves, he was released with all charges dropped. But the goal was achieved. Strauss-Kahn had to resign as IMF director and kiss goodbye his chance for the presidency of France.
Curious, isn’t it, that a woman has now appeared who claims Trump raped her when she was 13 years old.
Consider the political establishment’s response to the Brexit vote. Members of Parliament are saying that the vote is unacceptable and that Parliament has the right and responsibility to ignore the voice of the people.
The view now established in the West is that the people are not qualified to make political decisions. The position of the opponents of Brexit is clear: it simply is not a matter for the British people whether their sovereignty is given away to an unaccountable commission in Brussels.
Martin Schultz, President of the EU Parliament, puts it clearly: “It is not the EU philosophy that the crowd can decide its fate.”
The Western media have made it clear that they do not accept the people’s decision either. The vote is said to be “racist” and therefore can be disregarded as illegitimate.
Washington has no intention of permitting the British to exit the European Union. Washington did not work for 60 years to put all of Europe in the EU bag that Washington can control only to let democracy undo its achievement.
The Federal Reserve, its Wall Street allies, and its Bank of Japan and European Central Bank vassals will short the UK pound and equities, and the presstitutes will explain the decline in values as “the market’s” pronouncement that the British vote was a mistake. If Britain is actually permitted to leave, the two-year long negotiations will be used to tie the British into the EU so firmly that Britain leaves in name only.
No one with a brain believes that Europeans are happy that Washington and NATO are driving them into conflict with Russia. Yet their protests have no effect on their governments.
Consider the French protests of what the neoliberal French government, masquerading as socialist, calls “labor law reforms.” What the “reform” does is to take away the reforms that the French people achieved over decades of struggle. The French made employment more stable and less uncertain, thereby reducing stress and contributing to the happiness of life. But the corporations want more profit and regard regulations and laws that benefit people as barriers to higher profitability. Neoliberal economists backed the takeback of French labor rights with the false argument that a humane society causes unemployment. The neoliberal economists call it “liberating the employment market” from reforms achieved by the French people.
The French government, of course, represents corporations, not the French people.
The neoliberal economists and politicians have no qualms about sacrificing the quality of French life in order to clear the way for global corporations to make more profits. What is the value in “the global market” when the result is to worsen the fate of peoples?
Consider the Germans. They are being overrun with refugees from Washington’s wars, wars that the stupid German government enabled. The German people are experiencing increases in crime and sexual attacks. They protest, but their government does not hear them. The German government is more concerned about the refugees than it is about the German people.
Consider the Greeks and the Portuguese forced by their governments to accept personal financial ruin in order to boost the profits of foreign banks. These governments represent foreign bankers, not the Greek and Portuguese people.
One wonders how long before all Western peoples conclude that only a French Revolution complete with guillotine can set them free.
Every quarter there is always a fallback narrative put forth as to why companies fail to meet earnings expectations, and we now have that narrative for the rest of 2016 (and perhaps through 2025): Brexit.
As we discussed yesterday, as we enter into Q2 earnings season the main focus on all earnings calls will be to what extent Brexit will impact business for the rest of the year. Will firms guide down materially due to the UK referendum, or will guidance largely not be impacted, this is going to be the main focus of analysts and investors. To wit:
the main focus (by far) will be on the CQ2 earnings season (the first few reports will hit during the week of 7/11 but the heaviest volume will be during the week of 7/18 and 7/25). The CQ2 earnings season will be particularly important as investors are eager to hear updates from CEOs/CFOs on the extent to which Brexit-related disruptions materially impacted the outlook for their businesses. If the tone on the Jul/Aug conf. calls sounds relatively similar to the Apr/May updates (i.e. Brexit is acknowledged but doesn’t dramatically change H2 guidance) that would go a long way towards alleviating investor concern. Prior to the 6/23 referendum investors were penciling in a ~$130 SPX figure for ’17 – if that number only has a couple of dollars of downside stocks will continue stabilizing.
Almost right on cue, here is Reuters today planting the seed that Brexit can now be used as an excuse for firms that need to lower guidance without any pushback.
Foreign exchange volatility and economic uncertainty after Britain's vote to leave the European Union have imperiled a projected profit rebound in the United States, where companies have been stuck in an earnings recession since last year.
U.S. companies doing business abroad are at particular risk because of a jump in the dollar since last week's referendum and expectations of a potential stumble in European economies.
A strong dollar and plummeting oil prices slammed U.S. corporate earnings starting in 2015, but the stabilization of crude prices and the dollar in recent months has led investors to bet on a return to modest growth starting in the third quarter.
As the second-quarter reports gets underway in the coming weeks, executives' comments about the so-called Brexit's potential effects could alter Wall Street's expectations of when the profit slump will end.
"This adds more fuel to the fire, that the so-called spurt in growth in the second-half of the year is going to be really tough to achieve," said Synovus Trust Company Senior Portfolio Manager Daniel Morgan, who believes analysts are too optimistic.
To add to the narrative, Reuters notes that some companies such as Carnival are already warning on the impact Brexit will have on full-year earnings targets.
Some U.S. companies are already voicing caution about Brexit.
Cruise ship operator Carnival Corp (CCL.N) warned in its quarterly report on Tuesday that Britain's withdrawal from the European Union could affect global consumer confidence.
Chief Financial Officer David Bernstein estimated on a conference call that weakness in the pound and euro would have an eight-cent impact on Carnival's full-year earnings per share, although he said higher customer demand would make up for that and he did not reduce his outlook.
While it is true that there may be some impact on earnings related to Brexit, shifting the narrative solely to Brexit in order to mask the fact that the global economy is already stunningly weak is a sad, yet predictable tactic.
And as a reminder, 2016 outlooks have been tweaked to the downside long before the UK referendum.
As we said, none of this really matters as any and all misses that do take place will conveniently be blamed on Brexit as a "one-off" event, and P/E multiples which are already in their 99th percentile will continue to all time highs.
Earlier today, Tesla reported (with a one day delay so that perhaps its stock wouldn’t get clobbered ahead of quarter end rebalancing) that a 40-year-old Ohio man, named Joshua Brown, was killed when his 2015 Model S drove under the trailer of an 18-wheeler on a highway near Williston, Florida, sending Tesla stock lower nearly 3%.
In its defense, Tesla said in a blog post that the autopilot didn’t notice the white side of the tractor trailer against a brightly lit sky, so the brake wasn’t applied; the company reported the May 7 incident to National Highway Traffic Safety Administration. Surprisingly, it took the company nearly two months to notify its shareholders of what was a material event to the business model of a company whose “autopilot” feature has been pinned as one of the core growth drivers, pardon the pun; furthermore, a virtually assured outcome of this tragic accident is a costly recall (not to mention litigation) one which will soak up even more of the company’s already massive cash burn.
And while the details of the accident are sure to add fuel to the debate over whether self-driving cars are ready for the real world (they are not, especially when the “auto pilot” is merely a gimmick meant to boost the price of an overhyped stock, while masking the inherent flaws of a substandard luxury car by piling on even more hype), the real irony is that Brown, who was killed while using his Tesla Model S’s autopilot feature, had previously praised precisely the same feature and had posted video of Tesla autonomous driving ability helping to save him from a collision.
Joshua Brown died May 7 in a motor vehicle accident, according to an online obituary. The same picture used with that obituary was used on the YouTube account that posted the near miss in April, and as MarketWatch reports a Florida coroner confirmed Thursday that the driver killed in the crash there was named Joshua Brown.
In an image from an online video posted by Brown driving his Tesla Model S.
According to the Google account linked to his YouTube, Brown was the owner and founder of Nexu Innovations, a research and development company based in Stow, Ohio, that dabbled in networking, product development and 3-D printing. His corporate bio states that he served in the U.S. Navy for more than 11 years after studying at the University of New Mexico.
Tesla described Brown, without naming him, in its blog post as “a friend to Tesla and the broader EV community, a person who spent his life focused on innovation and the promise of technology and who believed strongly in Tesla’s mission.”
Brown’s last post to his YouTube account was a second version of the video that received more than 1 million hits, with image stabilization turned off.
Tesla Model S autopilot saved the car autonomously from a side collision from a boom lift truck. I was driving down the interstate and you can see the boom lift truck in question on the left side of the screen on a joining interstate road. Once the roads merged, the truck tried to get to the exit ramp on the right and never saw my Tesla. I actually wasn’t watching that direction and Tessy (the name of my car) was on duty with autopilot engaged. I became aware of the danger when Tessy alerted me with the “immediately take over” warning chime and the car swerving to the right to avoid the side collision.
You can see where I took over when there’s a little bit of blip in the steering. Tessy had already moved to the right to avoid the collision. I was not able to slow down even more due to the heavy traffic (cars were behind me). Once I got behind him I slowly added more room between us until he exited. I was not tail gating after the incident.
It was a mistake on the other driver’s part. He did not even know I was there until I honked my horn. There was a group of women in the black sedan to my left and they went nuts about the guy and what he did (all kinds of gesturing in their car). Once I was beside the truck as it slowed down on the ramp, the guy gestured a “sorry!” I gave him, “it’s okay” wave.
Tessy did great. I have done a lot of testing with the sensors in the car and the software capabilities. I have always been impressed with the car, but I had not tested the car’s side collision avoidance. I am VERY impressed. Excellent job Elon!
Note: I have over 39,000 miles on the car and I’ve had it since mid-July 2015. Hands down the best car I have ever owned and use it to its full extent. It has done many, many amazing things, but this was one of the more interesting things caught on the dashcam.
Less than a month later he would be dead, having relied on the same “self-driving” feature. Perhaps it is time for the NHTSA to actually start doing its job instead of fawning over the shaky and increasingly more questionable credentials of a still very wealthy “real world Iron Man“, who in the aftermath of his shocking announcement to buy SolarCity, has in recent weeks been called a charlatan by an increasingly more vocal group of outside observers.
Summary: Our basket of unorthodox economic indicators shows a U.S. economy that is growing, but at a very slow pace and with a notable sense of social unease. On the plus side, used car prices are defying all expectations by remaining robust – that helps trade-in values for new car purchases. Dealer inventories of new cars are also in good shape. Food stamp program participation is trending lower, although +44 million Americans (14% of the total population) still need government assistance to eat. On the cautionary side of the coin, large pickup truck sales have turned negative – a proxy for small business confidence in a range of industries. Consumer spending per day is declining, and our Bacon Cheeseburger Index is still flashing a deflationary warning. Lastly, the FBI reports that there have been 11.7 million background checks for firearm sales through May. At this rate, total year sales could reach 28 million, versus 8-9 million before the Financial Crisis.
We’ve been doing these “Off the Grid” indicator reports for years, and the most common question we get about them is “Why”? As in “Why do we care about data points that policymakers don’t talk about?” And “Why does any of this matter?”
Now we have an example of why: Brexit. To look at the standard economic talking points, the British people should have been happy to go with the status quo and “Remain”. Consider these customary measures of employment, inflation, output, and well-being:
Current unemployment at 5%, and much lower joblessness than other developed economies after the Financial Crisis and Great Recession. Peak unemployment post 2000 was 8.5% in 2011 – better than the US and most European countries. Source: http://ift.tt/297fsnM…
Inflation is running less than 1% – lower than what policymakers like to see, but very friendly to consumers. The worst things got were in 2008, when inflation peaked at 4.8%. Source: http://ift.tt/296ufCR
GDP Growth shows none of the quarterly volatility of the US economy, and has run between 2.2% and +5% since 2011. Source: http://ift.tt/297gzDM
Income inequality, according the GINI Index, is 32.4 – on par with Canada (32.1), Ireland (33.9) and better than Japan (37.9). Source: http://ift.tt/1lIQU4Y…
Large scale political outcomes – the kind that can move markets – are more than a function of simple economics. That’s why we look at a range of datasets that we call “Off the Grid Indicators”. There are numerous graphs and tables available in the attachment to this email. Here’s the highlight reel:
On the plus side of the ledger:
The auto industry is a large employer of American workers who do not have a college degree. This cohort has had a tough economic time since before the Financial Crisis, and auto industry jobs pay well. Keeping auto assembly plants running at stable line rates (and avoiding even temporary layoffs) is therefore important to this often overlooked cohort.
Currently, dealer inventories of cars and trucks are in good shape at 59 days supply. The ideal number is 60. This means as long as light vehicle demand remains constant, automakers can keep to their Q2 and Q3 build schedules.
Used car prices remain surprisingly robust. Auto auction company Manheim publishes an index of used vehicle values, and the most recent data shows prices remain at 2011 levels. That’s a positive for new car and truck demand, since potential buyers usually have a vehicle to trade in at the dealer or sell privately. The better the value of that car or truck, the more likely the consumer will be able to afford a new vehicle.
Fewer people are Googling “I want to sell my kidney”. No joke – this has been a top 3 autofill for Google when you enter “I want to sell my” for the last 2 years. It has been replaced with “Furniture”.
Participation in the Supplemental Nutrition Assistance Program (aka food stamps) is slowly declining. The most current roster has 44.3 million Americans in the program, down from 45.6 million a year ago. It is hard to say how much of this is better economic conditions versus reductions in coverage (childless single people have become illegible for the program in some states). Worth noting: even at 44 million people, that is still 14% of the entire US population. Before the Financial Crisis, there were less than 25 million in the program.
And some points of concern:
Large pickup truck sales are down year-over-year. This is one of our favorite indicators of small business growth in “Real America” (i.e. not coding the latest food delivery or dating app). May sales were down 3.1% from last year, one of the worst comparisons since mid 2011.
Gallup’s consumer survey of daily spending patterns shows the average American spending $93/day in out of pocket expense, up from $91/day last year but lower than the $98/day of 2014.
People are buying more precious metals than mutual funds. The six month rolling averages of U.S. Mint sales of gold and silver bullion coins are: $85 million (Silver) and $65 million (Gold). Both are higher than a year ago. By contrast, US mutual funds have seen a total of $31 billion in redemptions this year.
Our Bacon Cheeseburger Index – an equal weighted measure of the CPI inputs for bacon, ground beef and cheese – is still in deflationary territory for the second consecutive quarter at -2.5%. Don’t laugh – this measure of real world inflation (and therefore one that informs consumer expectations) was flashing a warning sign long before Chair Yellen and the Fed publicly revised their long term growth forecasts lower earlier this month.
We’ll close on one point that isn’t so much economic as social – the number of FBI background checks for firearm sales. This data is available monthly, and through May it shows that Americans have done the paperwork to make 11.7 million legal purchases of one gun or more. Taking that as a run rate for the year, 2016 could see 28 million firearm sales using the FBI check data as a proxy for transactions. That compares to a three year rolling average of 21.7 million. Since 2007, the FBI has processed over 150 million firearm purchase background checks. That is one for every two Americans.
This is obviously a hot topic issue in a presidential election year, and we have no desire to touch this particular third rail of American politics. From an economic and social standpoint, however, we think it is important to understand the numbers behind the debate. Before the Financial Crisis, the FBI typically processed 8-10 million checks per year. This year, that number might be 3x higher. That is a lot of guns.