Sunday, June 26, 2016

Brexit, South Dakota, And The Continuing Delusions Of Donald Trump

          Trumpistas have their reasons for reflexively cheering Brexit and its apocalyptic potential for re-defining and possibly undoing the European Union, but a more circumspect approach would better
A Fist Pump?
Scots Hate Brexit
(photo from cnet.com)
suit most South Dakotans, who need to consider the effect this explosion of xenophobic outrage will have on our state's largest industry.  Farmers and livestock producers have every reason to be concerned about the way global markets reacted to the news in recent days.
     Having spent a couple of decades, from the late '70s to the late '90s, trading and brokering securities and commodities, both on the trading floors in Chicago and in my brokerage firm based here in Rapid City, I recall that one of the most consistent indicators we followed was the value of the U.S. Dollar.  A relatively cheap greenback is good news for American businesses that depend on exports for a significant chunk of their revenues.  An expensive Dollar is anathema to them, because it raises the prices of American goods sold overseas.  
     This is why the sharp spike to the upside on currency markets that the U.S. Dollar made immediately after the Brexit vote bears some consideration and concern.  As the Brexit vote was nearing last week, American Farm Bureau Federation Chief Economist Bob Young said "the biggest concern is market uncertainty." As you might expect, when times are uncertain, world traders typically convert assets into U.S. Dollars, which are still regarded as the ultimate safe haven currency on world markets.  The greenback's 4% upside spike (massive by trading standards) after the Brexit vote reflected the very uncertainty that Young called attention to.  
     If this keeps up, the trend will only be a negative one for South Dakotans.  As a state, we exported $5.3 billion in goods and services in 2014, $3.8 billion of which were agricultural products. According to the U.S. Global Leadership Coalition, 124,000 of our jobs (22% of the state's total jobs) are export-dependent.  The organization also notes that in 2013, 939 South Dakota companies, 75% of them small and medium-sized enterprises that hired 500 or fewer workers, exported goods.  They accounted for slightly more than $1 billion in exports.  
     These are enterprises that will find world markets turning much more competitive as the U.S. Dollar gains in value during the turbulent aftermath of the Brexit vote. Chicago-based commodities
Yes, It's Bad
And Yes, Really
broker and AgWeb commentator Andrew Schissler also argues that the agricultural commodities markets themselves could come under some "nasty trading volatility" as owners of those products liquidate and turn their assets into cash positions.
     I wouldn't be so quick to celebrate the UK's rash departure from its decades-long economic relationship with the rest of Europe.  Nor would I view it as some triumphant prelude to the pseudo-nationalistic urgency that motivates the campaign of Donald Trump, who believes that antagonizing America's most significant trading partners, Canada, Mexico and China, is the way to move this country forward into some ephemeral "greatness" that he believes we've lost. South Dakotans have a long-standing interdependence with our foreign customers, who've created much wealth for this state.  High-fiving British petulance is no substitute for pondering its outcomes.

1 comment:

  1. We 'Muricans don't need ANYBODY else for anything 'cause we're special and independent and free. Now, wanna buy some wheat, corn or soybeans?

    ReplyDelete