Gordon Brown’s government is now facing a perfect storm of rising unemployment, plummeting housing prices and a nearly completely frozen domestic credit market. It is projected that the plan that Brown and co-conspirator Darling are now proposing will leave the UK with the largest budget deficit among the G7. Academics have seriously questioned the advantages of the administration’s much ballyhooed plan to help close the gap with tax hikes for the rich, recalling the 1970’s when the highest tax rates reached over 80% and capture little or no revenues as rock stars and Duchesses alike lived abroad as “tax exiles”.
Both the FTSE and Sterling have rebounded since initially selling off this morning on this news, but we remain bearish. We are short the UK via the EWU ETF and with a committed negative bias both on a relative and absolute basis.