The machinations of the Brexit - the UK's so far abortive efforts to leave the European Union - are now in the endgame I predicted in this column earlier this year. Last night UK Prime Minister Theresa May's agreed deal with the EU27 was roundly rejected again by a huge majority of lawmakers. The UK is set to crash out of the EU on the 29th of this month, except that this will not be allowed to happen.
Tonight MPs vote on preventing this 'No-Deal' scenario and are almost 100 percent certain to do so. Then tomorrow they will be asked to vote to delay the Brexit while either another deal is negotiated or a second referendum is held, or possibly another 'extraordinary' general election.
However, Mrs May cannot just call an election as Citibank's research department suggested this morning. Under the fixed parliamentary terms' legislation adopted in 2010 a Prime Minister requires a two-thirds majority vote in the House of Commons to approve such an 'extraordinary' event; given the scale of her recent defeats it is unlikely such support would be forthcoming, especially as many MPs would stand to lose their seats.
We also know that the European Commission in Brussels has already issued and stamped the only Brexit agreement it is prepared to offer the UK. So further negotiations are pointless as has been demonstrated over the last couple of months.
By a process of elimination then the only viable option is to hold a second referendum on the Brexit. This sort of second plebiscite is by no means unusual in the history of the EU. But what would be on the ballot paper?
Probably the only question the makes sense now is a simple choice between 1. Remain in the EU and 2. Accept the Deal. Giving the public the choice between many different Brexit options that the EU has already rejected would be as pointless as all such discussions have proven over the past three years. But what would the British people decide this time in their infinite wisdom?
Second referendum result
Recent opinion polls say it is too close to call, and that is a genuine enough reason to hesitate about betting the farm on No-Brexit right now. But Brexit was only won on a 52:48 margin, and has gotten a very bad press recently. British people are sick of hearing about it and the smart money must be on sticking with the status quo rather than a painfully masochistic indulgence in further Brexit uncertainty with its many shades of gray.
With the pound trading down at $1.30 at the time of writing there is clearly scope for wild gyrations in sterling until we have a final solution. If the public mood terms sour in the referendum campaign then a drop below Brexit lows of $1.25 are perfectly possible. All the same, when the Brexit is pronounced finally dead a rally should follow.
That won't be good for the FTSE 500, however. Beware the fact that more than 50 percent of the UK stock market index companies earn more revenue in foreign currency than pounds. Hence a rising pound puts a squeeze on their profits and share prices will fall as a consequence.
You are on much safer ground in buying stocks in other European Union member states like Germany or Italy. For the euro should rise against the dollar as the uncertainty and geopolitical chaos of the Brexit become history. For US investors you would gain from a double whammy of a rising euro and buying shares trading at a significant discount to Wall Street's current lofty valuation levels.
U.S. Exit Opportunity
US investors worried about highly-elevated Wall Street valuations and warnings about poor performance to come from senior investors should consider a move to Europe. The greenback goes a long way at the moment in the EU as travelers are aware and you effectively get a discount on any stock you buy.
Treat the Brexit as an opportunity for a US exit.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.