Post BREXIT thoughts.

Now the dust has settled on the BREXIT vote here a few thoughts on possible outcomes, although with all the economic uncertainty and political turmoil nothing is guaranteed of course just my views. For what it is worth I would like to see Andrea Leadsome as the new PM, but it seems to me that the Tory establishment are dead set on securing the role for their preferred candidate Teresa May.

Economy & Housing Market
The remain camp or project fear emphasised the likely damage to these in their campaign, but arguably went too far in the scaremongering as witnessed by George Osbourne's panicky "punishment" budget threat and talk of tax rises, spending cuts, interest rates going up and house prices collapsing etc. As we now know he has now done a U turn on this with no post BREXIT budget and indeed he had now gone full circle to do perhaps an O turn by now suggesting tax cuts (for Companies) and quickly abandoning his balanced budget ambitions to avoid the need for spending cuts and let the deficit take the strain. Not that surprising I guess, but it was more surprising that he and everyone else made such ridiculous claims before the vote.

I also note that the Bank of England, as always seemed likely, is now talking of rate cuts, liquidity support and in all likelihood more quantitative easing. Again not really what Carney was saying before hand. I note that predictions of a fall in Sterling have come to pass and it is possible that this will impact on inflation in the short term which could also put another squeeze on consumers real incomes. It is however likely that the Bank will ignore this again and keep rates low as they ignored 5% inflation a few years ago and the global background seems to remain deflationary generally. The weaker pound will be potentially positive for exporters although worth bearing in mind that hedging programmes may delay the effects coming through to the bottom line.

Having said that though it is fair to say that all the political turmoil & business uncertainty does seem likely to take the edge off of economic growth, although I don't think it will lead to a full blown recession like 2008, but I guess we could potentially see a couple of negative quarter in a row which is the technical definition of a recession. Unless of course we end up with a global downturn / banking crisis again on the back of it which I guess you can't rule out yet given the state of European banks for example.

On the housing market / house builders I would also tend to be more sanguine than the consensus, but as Persimmon said today it is too early to judge the effects. Nevertheless I think the supply & demand imbalance, lower mortgage rates etc. should provide support but the uncertainty  may hit reservations and volumes in more vulnerable areas like London which I'd be more cautious on in the short term. For the builders I think they should be able to manage their way through it by varying their mix and using their land banks to deliver continued decent profits, earnings and dividends.

Stock Market
As ever it is a market of stocks and we have seen quite a divergence between large international and defensive names and the more UK exposed mid and small cap names. If my view of a not too serious downturn is any where near right, then it is possible that there could be some good opportunities in these latter areas. However, if it is more serious than I think then the recent trend of large cap out performance is likely to continue, as ever time will tell. Ratings in the main look OK and yields are certainly attractive compared to bond and cash deposit rates. You will however need to be careful taking figures at face value as we have already seen a few profits warnings and the volume of these is likely to increase in the next six months as the full effects of the exit vote become clearer, so definitely worth treading cautiously I would say. Dividend cover has also come down generally so also worth looking at this and economic sensitivity when you come across a stock with a good yield.

That's all I have for you for now, not sure if it helps? I'll leave you with links to a couple of posts from the Nadeem Walayat at the Market Oracle site who I have followed since the financial crisis in 2008 and who has made some pretty good calls along the way. If you are not familiar with his work he certainly puts out a lot of thoughts on a range of subjects and while you might not agree with all his views his economic and market analysis has been pretty good in the last few years. His site if you are not already familiar with it also has many other opinion pieces from a lot of other analysts too which may or may not be of interest too.

So here is the first one on BrExit Implications for UK Stock Market, Sterling GBP, House Prices and UK Politics...

& the second one looking at BrExit Implications for UK Economy, Interest Rates, Bonds, Markets, Debt & Deficit, Inflation...

I'll leave you with one chart demonstrating the BRXIT effect on defensive stocks...