Brexit

[Guest TimP]

Hi All,

 

With the impending Brexit vote coming it is time to start thinking about the potential implications and specifically the opportunities and risks that may arise off the back of it. 

 

We had Nick Parsons from the National Australia bank comment that if UK votes for a Brexit, GBP will see a ‘substantial’ sell-off, but quickly ‘snap-back’ and then rise. This he says will happen within 24 to 48 hours of the result.  Nick says, though, that the long term risk surrounds the EUR/USD which, he says, will plummet to parity and stay there. Why? This will be because of the ‘existential’ threat to the euro.

 

Link: https://www.ig.com/uk/market-insight-videos?bctid=4931444580001&bclid=3671160850001

 

Naturally there can be two sides to a coin and so we would love to hear what you all have to say about the potential Brexit. Will the Sterling sink or swim? What would be the follow on effects? Where could you look for opportunities? How do we know when the dust has settled? 

 

Do post your thoughts, although lets leave the political elements out. 

 

Hope to hear from you! 

 

 

[Mercury]

Wow!  Brexit is getting blamed for everything these days.  BoJ, ECB and Fed governors all state that Brexit will cause global economic disaster and BoE governor warning of massive impact on Britain (political much?).  George O says house prices will collapse and mortgage rater with rocket (scare tactics anyone?).  The irony of that last is that most Britons want house prices to fall, including current home owners!  Possible own goals there Georgie boy!

 

Unless Britain still has an empire and has kept it well hidden I can't see it.  Rather I see people who are responsible for the soon to be see greatest financial disaster in history seeking any scapegoat they can find to go Teflon.  It wont work.  Brexit is a distraction to the real issues and once the vote is over (I for one am voting to leave, if only to push the EU to get real) the attention will return to real economic issues and then let the mayhem begin!  (Not immediately of course but relatively soon there after I am betting).

 

If you look beyond Brexit the market is just doing what it was always going to do.  The only evidence of the Brexit thing is some short term volatility on things like polls but overall the trend on GBP and EUR is firmly down and has been for several years (i.e. before the Brexit thing even emerged).  Doesn't all seem a little like rearranging the deckchairs on the Titanic?

 

[Mercury]

Time to get off the fence and take a stand.  We will vote to leave the EU, there I've said it.  With so many journos and past polls and pundits saying we will vote remain, chiefly because of uncertainty ("better the ***** you know") I can't help feeling they are all as wrong as they were at the last general election.  Maybe the pollsters have learned that lesson and are now getting it right as the Leave side starts taking the advantage in the polls, will be interesting to see how the polls go in the run up.

 

The remain campaign is getting more and more hysterical (or maybe I should say laughable) as the reality dawns that we might just vote to leave, unthinkable a few years ago but a lot has changes in a few short years and we can see the general worldwide protest vote against the establishment gaining ground.  No major actual victory yet, unless you count Greece and I don't, so why not Brexit as the first major victory for change?

 

If we get a Brexit vote I expect a huge market over-reaction, especially on GBP.  By then I expect stock markets to be in the final phase of a rally to all time highs so might not be such a bad reaction there.  After that there will be the correction.  But I think the big play will be EURGBP.  I think the Euro will suffer more lasting damage from Brexit than GBP.

 

1986 lows anyone? (even if they are artificial)

 



[Mercury]

Interesting article from the Telegraph, it seems that people are waking up to Brexit as a realistic scenario.  I particular like the point about Brexit being a Black Swan event, although in truth this one is eminently predictable if one has an open mind and stops drinking the establishment coolade for a moment...  Personally I think the Euro drops just as fast and a quickly as GBP on Brexit, if not faster, I think the markets already know what Brexit may mean for the Euro and the EU and are already beginning to price that in.  Next few weeks will be interesting in the run up to the vote.  

 

 http://www.telegraph.co.uk/business/2016/06/14/brexit-panic-and-deflation-drive-german-bund-yields-below-zero/

[Mercury]

Today's hedgeye.com offering on Brexit

 

[Mercury]

BoE joins the choir of other CBs in warning of grave global financial repercussions on Brexit, as if the Brits give a hoot about that!  Of course Mr. C it will all be because of Brexit not CB and politician gross mismanagement...

 



[jbtrader]

Been very interesting to see the GBP getting slaughtered as then Polls show a leaning towards an exit.

The Bookies have the weight of money saying they will stay and I tend to believe more in this than the polls.

Time will tell.

I think we might see a bounce in the GBP in the next few days leading in to the vote.

I am trading that way as of today.

 

Either way its certainly going to be volatile.

 

Cheers,

 

JB.

[Mercury]

It is a big decision, cash or ride it out if you feel strongly about the overall direction and you are in a strong position.  I think we have a few days yet to make that decision but I wouldn't want to have heavy exposure without guaranteed stops around the vote and results time, even if that means missing out on a huge move in my favour.  Perhaps the smart thing to do is hold only a few your further positions (i.e. largest distance from the market price).  Even so a massive sudden move against could be costly and if this is to be the seismic market shock that everyone is worried about...

 

If vote remain wins then the GBP will get a shot in the arm but how much really before reality kicks back in?  GBP has been going down far longer than Brexit was on the table.  If vote leave wins then GBP will drop through the floor before correcting (typical market overreaction is all but guaranteed right?).

 

On balance therefore an upside surge is not likely to be as strong as a downside one I would say (still strong but not a Swiss Franc style one).  Therefore if you have some shorts a long distance away keeping those stop protected at BE could be a decent bet but I'd clear out all the rest some time next week.  No way anyone should risk going long in my view.

[jbtrader]

Closed 3/4 of my GBP long positions this morning.

Just holding GBPNZD in a reduced size and moved stop to B/E even though its 250pips ahead.

Anything can happen.

Going to be treading very lightly this week.

 

Cheers,

 

JB.

[jbtrader]

Just hit TP on balance of GBPNZD

Staying out of the GBP now.

 

What a move since Friday!!

[Mercury]

Decent summary of what Brexit means for the global economy and financial markets and why everyone in the establishment is so worried about it (viz their house of cards comes tumbling down).

 

http://davidstockmanscontracorner.com/the-brexit-thread-how-global-markets-could-unravel/

 

But here's the thing no one seems to be saying in the debate, the house of cards will tumble anyway.  My reading of things is that a Remain vote (getting more likely again and still the bookies favourite) simply puts off the inevitable.  One thing it might do short term is push the the Stock indices to fresh all time highs, an over reaction that would provide a good Short opportunity and maybe beginning of the end a lot of people have been calling since April/May 2015.

 

As regards FX, I can't see any Fundamentals or technicals justification for a GBP or EUR bull run, can anyone let me know if they have one?  Therefore any rally on Reamin ill be short lived and after the dust has settled Shorting could be back on the cards.  Of course the old saying of "buy the rumour, sell the fact" could be in play right now with the rally on GBPUSD and EURUSD, as we approach the vote perhaps we will see a weakening of that position or perhaps we will see a contrarian sell off after a Remain vote.

 

I can't wait for this to be over!

[Mercury]

I get the reasons for the margin changes but it makes trading too expensive to cover for me so I'm out of the market until the dust settles.  Given the potential volatility and the fact that the referendum is too close to call and that the result will produce an overreaction either way my strategy is to wait for this overreaction and trade in the medium term direction, depending on which way the vote goes.

[Mercury]

This is certainly how I feel, roll on next week and normality, whatever that is these days...

 

[Mercury]

I almost never 100 % agree with any journalist but this is the exception.  My feeling is I like Europe, I feel European I just hate the institution of the EU.  A Leave vote is the only way to prompt real action and an alternative union, more like the original EEC that was voted for originally.

 

Article from Dominic Frisby - MoneyWeek:

 

 

The referendum is tomorrow. It is very exciting, and I cannot wait.

Today I summarise my articles of the past few weeks into ten digestible bullet points.

Here are ten reasons to vote Leave…

 

 

I love Europe, but I want to leave the EU

 

It’s obvious. But based on some of the things I’m reading on social media and elsewhere, it needs saying again.

Voting to leave the European Union (EU) is not voting for Boris or Nigel or anyone else. The elected Conservative government will remain in power until there is another election, at which point we can vote for a different party if we so wish. This is simply a vote on whether we should remain part of the administrative body that is the EU.

It does not mean you will no longer be able to travel to France. It does not mean your continental friends will not be able to come to the UK. And it doesn’t mean we will no longer be able to trade with our European brothers.

I should say, my grandparents were Italian. I speak five European languages, three fluently. I have lived several years of my life on the continent, and I do business with people in Europe all the time. I’m a europhile. And I want out of the EU, and here are ten reasons why.

 

1. Centralised power is the wrong way to go

People thrive most in societies in which power is distributed as thinly and widely as possible. In such environments they are happier, healthier, wealthier, freer, and they achieve more.

The EU, by design, centralises power in Brussels. We are moving into an age of decentralisation and localisation. The EU is the wrong model for the times.

 

2. Fringe nations perform better

Since the inception of the EU in 1993, the economies of Norway, Switzerland and Iceland (even with its financial crisis) – the fringe nations – have on a per capita basis dramatically outperformed their neighbouring EU economies.

We would be a fringe nation and that would suit us.

 

3. Regulation should be local

Around 65% of regulation is now set in Brussels. It is of a one-size-fits-all variety, and so often inappropriate to local circumstances. Rather than facilitate progress, regulation hinders it.

Yet, once in place, regulation is hard to change. Rather than get cut, it is added to. We already have too much in our lives. What we need would be much better set locally, according to local needs and circumstances.

 

4. The economic disaster that is southern Europe

We now have 39% youth unemployment in Italy, 45% in Spain and 49% in Greece. These countries are unable to do the things they need to do to kickstart their economies because decisions are being taken on their behalf; not locally, but in Brussels.

I cannot support with my vote an organisation that has inflicted such misery on its people. Reform of a bureaucratic organisation like that from within is an impossible undertaking.

 

5. Immigration policy is becoming ever more important

There are more and more people in the world and – whether it’s those displaced by wars, by lack of water, by poverty, hunger or lack of opportunity – more and more of them are on the move. We are in a migration of people of historic proportions.

The UK, in the way it currently operates, will struggle with immigration levels over 300,000 a year (and growing every year) for a sustained period. We don’t have the infrastructure (see James Ferguson’s in-depth piece on immigration on the MoneyWeek website for more detail on this).

I wonder how we get those numbers down. I’m not sure we can, either in or out of the EU. It is a tide in the affairs of men. But we are in a better position to do it with total control of our own borders and border policy.

 

6. Trade deals are a red herring

As a percentage share, British trade with the EU, despite the single market, has fallen by almost 20% since 1999. British trade with the US, on the other hand, has grown. We have no official trade deal with the US.

Here’s a chart of exports for your delectation.

UK: Exports of goods and Services. Source: Oxford Economics/ Haver Analytics

There is no point having a common market if the economies of the countries you’re in that market with are dying.

 

7. Further integration with the EU = economic decline

When Britain joined the Common Market in 1973, the EU (as it is now) produced 38% of the world’s goods and services – 38% of global GDP.

In 1993, when the EU formally began, it produced just under 25%. Today the EU produces just 17%.

The obvious explanation for this is the rise of the Asian economies, which have taken on a bigger share of global GDP. But why then has the US’s share not fallen by as much?

The US’s share of global GDP stood at 30% in 1973, 27% in 1993, and stands at 22% today. That’s a 55% drop for the EU versus a 27% drop for the US.

Run away.

 

8. Democratic accountability matters

The EU is not a democratically accountable body. I didn’t vote for the administrators and nor did you. I don’t know who most of them are. If we want to vote them out, what do we do? We can’t do anything.

And if you want some idea as to the esteem in which they hold democratic process, how about this from the president of the European Commission, Jean-Claude Junker: “prime ministers must stop listening so much to their voters and instead act as ‘full time Europeans’.” Or how about another one of his remarks: “when it gets serious, you have to lie”.

Just what you want in a president. Do you remember voting for him? I certainly don’t.

 

9. Land ownership and the Common Agricultural Policy

There is no greater manifestation of the wealth divide in the UK than who owns land and who doesn’t: 70% of land in the UK is owned by fewer than 6,000 people. Yet these people are not paying tax on the land they own, they are receiving subsidies for it. Landowners are being paid by the EU to own land.

Of the EU budget, 40% goes on agricultural policy. This has created vast amounts of waste. It has propped up inefficient businesses that have failed to modernise. It has re-enforced monopolies which should be broken up. Worst of all, it has meant that African farmers have been unable to compete, depriving millions of a livelihood (not to mention cheaper food for the rest of us).

I cannot endorse with my vote an organisation that does this and shows zero inclination to change its ways.

 

10. The Common Fishing Policy

60% of EU water is British or Irish. We have not been given any continental land (why should we be?), yet we have had to cede control of our waters to gain EU membership. What was once a huge industry and the largest fishing fleet in Europe has all but disappeared.

The French, Italians, Spanish and Greeks had fished out the Mediterranean. They were given access to our waters and our quota was reduced to 13% of the common resource.

The quotas system brought about the dreadful practice of discards (putting dead fish back in the sea), and reformed EU regulation now means that rather than being put back in the water, it is brought back for landfill instead.

Let’s have our waters back.

I don’t think it takes a genius to work out which way I’m voting tomorrow. Good luck with whatever you choose to do in what will be a historic occasion. I’m looking forward to it.

 

I believe, in the event we vote to leave, we will experience an economic boom that will take everybody’s breath away, to the extent that we will look back and wonder why we were even discussing it. Fingers crossed.

 

 

 

Dominic Frisby
MoneyWeek

[Mercury]

Wouldn't surprise me if there was manipulation but more likely to be pure speculation.  On balance one might imagine that more smaller bets is the vox populi however I'm not sure the average betting shop/website punter is the same as the average UK resident likely to vote tomorrow.

[Mercury]

Where are the hats?  Party hats on Friday maybe...

[Mercury]

I must say I am finding the current market conditions fascinating.  Stocks, Commodities, FX all appears to be griped in an single issue dynamic while the fundamentals of the economy are completely ignored and the usual central banker messaging is also all about Brexit.  Just goes to illustrate the unsustainable hyperbola driven bubbles are are surely in.

 

Wonder what next week will bring, a post Brexit hangover regardless of the result? 

[Mercury]

Still too close to call.  One great thing about spreadbet trading is you can be totally out of the market, unlike the professional traders or long term investors (although on that side I am totally out as well...).  I am relaxed about monitoring all this from the sidelines and waiting for the post Brexit opportunities, of which I am convinced there will be many.

[Mercury]

I expect quite a lot of volatility overnight bu there will be low liquidity and the eventual result should be in around 4/5am BUT if it is a close run thing the result may be delayed.

 

Once the result is in expect overreactions before things settle.  Realistically it will not be until next week that normal trading can resume.  Friday will be highly dangerous.

[Mercury]

Not tight anymore!  I was convinced GBPUSD had to go below 13,500, just didn't think it would happen in one day!

 

There is something very wrong with financial markets when a vote like this, the consequences of which cannot be know by anyone, should cause such a dramatic fall in GBP.  Despite the fact that the underlying fundamentals support an eventual fall of this nature.

 

What remains to be seen, from a purely markets point of view, is whether this will be the pinprick that bursts all the rest of the bubbles.  People may blame the vote but that is pure fantasy.

 

The media is not helping with quotes like "economic turmoil".  It is just market turmoil the economics are unchanged.  One thing that is correct is that the algo trading is hysterical (ironic that when you think about it) a total overreaction, once the dust settles there will be a retrace and only then will we see what the longer term direction is. 

[Mercury]

Ok I get GBP and FTSE (not the quantum but the direction at least) but why are Oil and Copper going down?  And look at the Nikkei FFS!  It's worse than the FTSE!  Total nonsense!

[Mercury]

As an aside, it looks like online polls were more accurate than phone polls.  Something to log for the next time...

[Mercury]

Early days but it certainly looks like DX up EUR and GBP down.  Looks like USDJPY has bottomed out, right where it was predicted but I am not so sure about stock indices, US markets will show the way I expect (possible exception of Dax and Nikkei which have been hit much harder than FTSE - so far at least).

 

Check out this weekly chart on EURGBP.  Spike makes an excellent tramline consistent with previous lines and a good candidate for a wave 4 top, I suspect that after a suitable retrace rally this one will fall as predicted.  The Dax showing certainly bears out the notion that Europe will suffer more than the UK as the dust settles.

 

As such, and pending further clarification and dust settling I'm inclined to seen Shorts on retrace turning points for EUR and GBP vs USD, and on EURGBP.  Long on commodities, at least until a Wave 4 is reached, no change there as a result of Brexit and stocks could yet go either way.

 

Anyone got different ideas yet?

 



[Mercury]

Tru dat!  Trade with caution or not at all.  that is true all the time though.

[Mercury]

On the flip side if you don't take a position on long term direction and identify decent entry points over the next few days you will be left on the sidelines of some very significant moves with later entry points hard to come by.

[Mercury]

Of course we also have to remember that there is little actual live trading going on just now, just prices being marked down.

[Mercury]

No. I did get up early (4.30 am) to catch the business end though.  Things will get interesting from a market point of view next week.  Politically and socially it will take longer to show but by and large I think we have to be optimistic in Britain and work hard to make it work.

 

The real problem will be when the economy does crash.  It will have to be pointed out the the global economy is crashing and it has nothing to do with Brexit.  Even some very bright friends of mine are making some crazy statements today, gotta calm down and take the emotion out of it but the media are not helping today.

[Mercury]

I was just about to say something similar.  The **** BBC are still banging on about the FTSE big drop, not a word about how it has almost regained 75% of that over night drop and while the US has opened down it immediately rallied.

 

Can say this is a definitive trend but it would not at all surprise me if the US leads the markets back up now the Brexit BS is done.

[Mercury]

Can Draghi shore up the banks while also persisting with his crazy QE?  One big reason the banks are unsound is low (err negative) interest rates.  The only realistic way of saving the banks is to allow them to charge for services, anyone see that happening anytime soon?  Unless they just start doing it of course, they are free market institutions after all...