American Stocks After Brexit

Perhaps it is because I have far more American than British stocks as a reference point when studying the stock market, but I was a little surprised to see that American stocks seemed to offer a good deal in the aftermath of Brexit than many British stocks themselves.

The only British stocks that came down substantially in the aftermath of Brexit were the financial institutions, and they have such difficult to determine intrinsic values that I am not sure any firm conclusions can be drawn regarding their fair value. They have wide latitude to engage in “the rehypothecation of collateral” which involves pledging the assets of customers as collateral for their own activities. At Barclays and Lloyds, you see the same assets getting rehypothecated two, three, four times over, and is a big reason why Barclays fell from $62 to $3 during the financial crisis. Because the financial sector is such a pride of London, it faces less restrictions which can be good during boom times but is disastrous as soon as you enter a recession that goes a few notches deeper than what is foreseeable. Citigroup can’t brag about its general practices compared to too many other institutions, but it can compared to Barclays.

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