The Long And Winding Road

[A Personal Note: Thanks to so many of you that reached out about my brother. Thanks to those of you that shared their personal stories with me. We lost Eric last Wednesday to cancer. He put up a brave fight. I can only hope, and pray, that he is off on his next adventure and that it is a wonderful one. God bless us, each and every one!]

The long and winding road

That leads to your door

Will never disappear

I’ve seen that road before

It always leads me here

Leads me to your door.

– The Beatles, 1970

In 1970 I was twenty years old and wondering just where I was going. I had no idea back then but, all of these years later, I know exactly where I have gone. It’s funny low life unfolds before you. The other odd thing about it is that life unfolds part of it for you and then you get to unfold part of it yourself. That’s why, I suppose, it is such an interesting adventure.

As a kid, when I first heard this song, there were no thoughts of Wall Street in my mind, I can assure you. Looking at the lyrics now, it is a good depiction of Wall Street, I think. Depressions, recessions, great economies, lousy economies, spectacular markets and horrendous markets the road continues along. It just keeps leading us along.

The value of “experience” is also depicted in the text, “I’ve seen that road before,” which is why while innate intelligence is important, while technology is important, neither is any substitute from the lashings and beatings, and occasional moments of joy, brought on by the experience of the journey. Insights are gained by the participation and it is only by participating that you may gain some knowledge and wisdom.

I am quite concerned about Europe, and their financial markets, at this point in time. You may think my main concern is Brexit, but that would not be correct. I am far more concerned about the upcoming EU elections, which begin on May 23.

In the case of Brexit there are basically three variable, and messy, options. The first is to kill Brexit and retract Article 50. The second is to delay Brexit, which the British Parliament voted for yesterday, extending the Article 50 deadline until June 30, 2019 but this also has to be approved by both Britain and the European Union and the EU could deny Britain’s request. The last option would be to sign up to an unacceptable deal, just to do a deal and get it over with, for once and for all. This option could literally bring down the British government and possibly elicit a veto by some European nation.

Then there is the question of laws and how they are to be applied if Britain exits. What happens to the European bonds issued under British law. I have pointed out, and point out again, that there is a large amount of Risk on the table here which is not only political but which could radically alter the covenants of many securities including derivatives, equities, bonds, CoCo bonds and inter-bank obligations. Many are dismissing these concerns. I am not!

The bigger consideration, in my mind, is the forthcoming European Union elections. Nationalism in a number of countries has come to the fore and the old French/German alliance, which has ruled the EU since inception, may be brought down by these elections. Brussels could become a very unstable place, depending upon the outcome of this vote.

You have Marine Le Pen, Viktor Orbán, Matteo Salvini, Jarosław Kaczyński who are all nationalists on the Right. You have Nicolás Maduro, Raúl Castro, Jeremy Corbyn, and Jean-Luc Mélenchon, who are all nationalists on the left. When you get down to it the two sides could join forces to undermine the wishes of both Germany and France. Do not discount this outcome. Look at what just happened in Italy.

The goal is to change Europe and give voice to those populations that are cut down by those who only ever cared about financial outcomes and the multinationals and who have offered us a future of precariousness and fear.

– Matteo Salvini, Deputy Prime Minister of Italy

I would say that under almost any rational scenario that the EU of today will not be the EU of tomorrow. What it will be is an unknown and when a “Large Unknown” is staring you in the face then it is a far wiser decision to stand back and let the game playout, without risking your money on the political outcome, of what events may come. This is clearly in the camp of my “Preservation of Capital” Rule and it certainly applies to what is happening in Europe presently.

Never laugh at live dragons.

– J.R.R. Tolkien