Market Thoughts : Dedicated to Scotland

Scotland, land of the world’s favourite whiskies and the birthplace of Adam Smith, the father of modern economics.

Bernie and I were discussing Scotland back in March this year during the run up to the European parliamentary elections in May and we concluded that nobody was going to pay much attention to it till it drew closer.

Headlines involved Lego Toys asking the UK government to remove their toys from being used in the “No” campaign, a punter placing a £400k bet on a “No” vote and the Pope voicing fears on an independent Scotland.

In July and August, the markets started to stir yet this priced in a no split result from an economic perspective even as the GBP drifted lower in line with the EUR.

14 Aug  Traders in bonds and currency markets are concluding the vote on Scottish independence will be “no” : Bloomberg

And more assuring headlines stating that the largest employers in Scotland, about 130 companies with Scotland based operations have signed an open letter against independence. http://online.wsj.com/articles/business-leaders-slam-case-for-scottish-independence-1409127200

Countries getting involved as well with Spain and Belgium threatening to veto an independent Scotland’s EU membership because of their own problems with their own separatist regions. http://www.telegraph.co.uk/news/uknews/scottish-independence/11054187/Spain-and-Belgium-would-veto-an-independent-Scotlands-EU-membership.html

Then a huge swing in the polls conducted by YouGov  poll conducted by The Times and The Sun end Aug found that the “Yes” camp has risen in popularity by shocking 8% and over 22% within a month. http://www.theglobeandmail.com/report-on-business/international-business/european-business/rising-support-for-scottish-independence-underscores-huge-economic-business-issues/article20298473/

Yet Scottish people are selling their independence vote on Ebay.

Why ?

Guess who is voting ?

“For the most part, anyone over the age of 16 (the voting age was was lowered from 18 for general elections) who lives in Scotland can vote. It is alright if you were not born in Scotland, but you must be a EU or Commonwealth citizen who is living in Scotland now. Members of the armed services who are now overseas but are registered to vote in Scotland can also cast a ballot.

As a result, 800,000 Scots who live in other parts of the UK will not be allowed to vote, while 400,000 people from other parts of Britain who live in Scotland will be able to vote.” http://www.businessinsider.sg/what-you-need-to-know-about-the-scottish-independence-referendum-2014-8/#.VA6NfxaKVX8

More information  : http://www.yesscotland.net/answers/who-can-vote-referendum-scottish-independence

So we will have 800,000 Scots not voting and 400,000 Brits who will be.

After the YouGov poll, the GBP weakened slightly but in my opinion, it was the ECB surprise move on Thursday that drove the panic sell off which is then conveniently blamed on the referendum.

GBP 30 DAYChart : 30 day GBPUSD chart

Thing that has emerged from this.

  • Scotland will be a wealthy country holding 90% of UK’s North Sea oil fields.
  • UK’s nuclear missiles are located in Scottish borders.
  • Not to mention the billions of dollars of clean energy projects in progress based in Scotland that require UK subsidies.
  • Lloyds and RBS are headquartered in Edinburgh.
  • And of course, the currency of Scotland’s choice with the EU membership out of the question, the practical preference is to keep the GBP by the interim government is out of UK’s hands.

“Olli Rehn, currently one of the vice-presidents of the European parliament, said yesterday in a letter to HM Treasury that Scotland could not apply for EU membership while informally using the pound sterling because it doesn’t have its own monetary authority and would not have the necessary monetary instruments to prepare for entry to EMU” (Telegraph)

Rupert Murdoch, a new found enemy/critic of the current UK government after his company’s news hacking scandals, tweeted an interesting observation a couple of days ago that the “Scottish poll reflects world-wide disillusion with political leaders and old establishments leaving openings for libertarians and far left.

We know that HOPE is disappearing fast in the world of politics even as Obama reneges on his election promise of migration reform and his popularity back in his home state of Iowa where he delivered speeches of HOPE back in 2006, has fallen to 38%.

And all it took was this YouGov poll to spur “No” camp into action, now promising to grant Scotland more power over tax rates and welfare. http://uk.reuters.com/article/2014/09/07/uk-scotland-independence-osborne-idUKKBN0H207C20140907

My son’s school teacher has gone home to vote, or so he tells me. That silly boy choosing to review Braveheart (of all films) for his film review the other day, which I chastised as politically insensitive.

That chap was QUARTERED (torn into 4) about 800 years ago for rising up for an independent country.

I have my opinions but I will keep them to myself.

Opinion polls are one thing but the silent majority is another and the silent majority prefers a certainty. Looking at the population pyramid, we see a large group heading into retirement and awaiting pensions.

scotland populationTaken from http://www.gro-scotland.gov.uk/statistics/theme/population/projections/scotland/population-pyramids.html

“NO”
Don’t ask me why there are 27,375 females above 90 and only 10,310 males in that age group. Let’s look at the big belly at 50 and those are the ones whose pensions will be imperiled  should anything go wrong.

“YES”
Letting 16 year olds vote may be a good idea because youth unemployment is at 20.6% (0.5% higher than UK). http://www.bbc.com/news/uk-scotland-scotland-business-27309754

It was tweeted that in the last Quebec referendum back in 1995, “yes” had a lead of 6% going into the vote, but “no” won by 1.2% with a massive turnout of 93.5% (courtesy https://twitter.com/simonhinrichsen)

My first instinct if Scotland secedes would be to check out Edinburgh properties or Glasgow because capital cities where governments are located are generally favourite places to invest eg. Dublin, ignoring the homeless bit (http://www.bbc.com/news/business-27877029?ocid=socialflow_twitter).

scotland real estate pricesGraph : UK HBOS Standardised Average Property Price in Scotland

Yet is it not the end of the world for the UK, really.

These are 2 countries quite inextricably linked that a graceful exit would do more good than harm and its been a long time since they fought unlike Ireland which managed to break free after fighting less than a century ago.

I checked on Wikipedia and the last battle between Britain and Scotland  was all the way back in 17th century. http://en.wikipedia.org/wiki/List_of_battles_between_Scotland_and_England

And we have 1 more week to go till the 18th where we shall know the results after the US FOMC decision that will be at 2 am (SG time).

The GBPUSD is near a good support level (1.59) that a buy may be tempting because they ultimately still have the upper hand.

gbpusd

 

 

 

 

 

 

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