The Next Black Swan - Brexit

valueinvesting
investing

#1

Disclaimer: Brexit is political issue. This is a completely apolitical post. I do not live in Britain and so the outcome does not affect me.

Okay, I am not a writer by trade, so go easy on me. Still, I believe we are looking at another big short moment on UK government bonds and Brexit.
Unfortunately, this will have absolutely effects on the uk economy. Sadly, the way things look it is the Brexit vote that is driving this…

If this goes the way it looks like its going, UK will need an IMF bailout. When Hard Brexit hits, the government’s tax base will be very swiftly eroded as a property recession hits. Like Ireland, Greece and US they will need short-term liquidity, thus they will have to appeal to the IMF for funds.

When I read someone talking about this, I thought it was clickbait. After running the numbers, the potential scenario is very dark!

The UK’s Housing Market Is Collapsing.

The UK’s housing market is collapsing.The 40 year boom in UK housing, aided by cheap credit, is coming to an end by almost every measure.

There are record levels of empty houses in the UK:

Rents are falling:

The UK is entering a recession in construction industry

UK Bankers unhappy with bonuses:

UK Gov Dependent On London

The UK government is dependent on London for taxes.

Almost 30% of UK’s tax is payed by London.

Brexit will be very damaging for the london tax base…

That’s income, dividend payments, property rents all crushed by Brexit…

When this happens, the UK government will to find experiencing a credit bust similar to that experienced in Ireland, or Us in 2008.

And they will need an IMF bailout.

I don’t have time or the skill to do the deep analysis, but there are a number of flashing red warning signals!

  1. The UK generates £30 bn. in employment taxes from the city of London financial services sector. £30,000 of tax per person. You read that right - not 30k in overall pay. 30k paid in taxes per person!

  2. Then if you look at the construction industry that employs another 3 million people and contributes another £90 billion

  3. Look at the number of taxes generated from property taxes alone in the UK - 9% of revenues. That is an absolutely astronomical amount of money! The only countries with these numbers are Australia, Canada, Korea and Israel. Don’t know about the last two, but Australia and Canada are already in serious bubble territory and hedge funds are lining up to take a punt.

Probably not hard to see why…

Also, it’s worth pointing out that a significant portion of capital gains comes from property as well!

Now maybe I am wrong here, but that already adds to roughly £230 bn. If that number took a serious hit, the UK will be in very serious trouble

If total government revenue is £230 bn.,

If property market really slows down, this could hit high earners in London. If London tax base will be annihilated by Brexit, UK government are going to have serious issue paying up…

…bailout will likely to needed.



How Will Brexit Affect My Finances?
#2

The real question is: how much money do you have riding on this?

In all seriousness, it’s not a bad theory. I read a lot of financial news and I haven’t heard anything about this. Which means it’s interesting!


#3

Don’t say you weren’t warned!


#4

It looks like things are starting to go this way: