Post-Brexit Europe Passes Its First Test

Friday’s extreme reaction in global markets to Brexit has given false credence to the doom-and-gloom “I told you so’s” of the global elites to whom this is an existential affront. We reiterate our position that this is a buying opportunity, and a chance to lighten up on haven assets. Already Europe has passed its first post-Brexit test. Defying “prediction markets” and polls, Spain’s Marxist Unidos Podemos has done poorly, and the conservative Partido Popular has done well. It will still be hard to form a government, but the expected hard-turn to the left has not materialized. We continue to think that the UK will do fine without the EU, but that the EU won’t do fine without the UK – but this opens up for the first time the chance for real EU reform, focusing first on immigration. Highly indebted Italy and Spain, both of which use the euro currency, are the flashpoints to watch, but Spain has now taken itself off the threat-board.