Brexit - The Aftermath




Yes, Brexit was a disaster for capital markets ... but mainly because most traders did not hedge their positions for such an eventuality. Most traders assume the Brits would never do something so silly. Yes, it is silly because Britain has a 75% export market and depends on the union in more ways than one. 


London as the financial centre has been magnified for the past 10-15 years thanks to the free movement of labour, capital ... the flow on benefits of that cannot be minimised.


WHAT IS LIKELY TO HAPPEN

- REGRET: More and more Brits will regret their decision. There will be movements to garner sufficient support for a second referendum - even though that is not written in stone, it could be debated in Parliament if there is sufficient pressure.


-  POLITICAL WILL: Cameron did what I considered the smartest chess move, and swiftly too, by resigning immediately. He is basically saying, you want to eat shit, then I am not going to be the one to open the door and scoop the shit. No wonder Boris looked like Becker having lost Wimbledon yet again. Boris should be celebrating but with Cameron's resignation, he is in line to be the "the leader" and its really a no win situation for Boris of London. If you look around, none of the vocal  Brexit leaders are now trumpeting to invoke Article 50 immediately. This is the classic case of "be careful what you wish for, cause you buggers do not know what to do when you have it".

- E.U. STANCE: The 6 foreign ministers of EU came out strongly to basically ask Britain to move quickly to exit. That might be a surprising stance to many but its a calculated stance to stand strong and send a signal to other nations wanting to leave the union. Its still a stance.

- This will lead to a discordant British society with youth vs seniors, as the majority of the seniors voted for Brexit while the majority of youths voted to remain. Looking at actual impact, most youths have another 40-60 years to live with the decision while the seniors have between 5-20 years. You do the math. As you stop people from coming in, you also limit the "opportunities" to work in the rest of Europe. There are also many British retirees in Spain, Portugal and Greece ... I think they will make it tougher for these seniors to retire there soon.

- OTHER EXITS: Naysayers will cite that now more countries will go for the referendum route to exit EU. Well, thats a probable route because most right wing parties in every country will try to jump on the bandwagon. Again, we have to look at this logically. Not every country want to leave the union as they are in a position of weakness in economic terms, structurally and being too inter-dependent on the union.


WHAT IS REALLY REALLY LIKELY TO HAPPEN

- Both side will quickly try to negotiate a "new treaty" ala Switzerland, Norway. The EU really really needs Britain to be in at least in economic terms. If Britain can get some new terms in free movement of labour, I think that can sway the way for a second referendum. If you look at it, both sides really want to be in. Even Brexit leaders will concede that much if the terms can be changed somewhat.

- At the end of it all, its the immigration issue, nothing else. Maybe a special passport will be needed for other Europeans wanting to work or stay in London. Actually its not that difficult. Just accept Temporary Resident, renewable for every 3 years, provided they have a proper job offer. And they must leave the country within 3 months if they do not have a job anymore.




MARKETS

- Very hard to try to discount when there are still so many permutations. To try and guess, will make you making good money or lose a ton of money. If thats the kind of bet you want, go ahead. But if I am forced to bet, based on the arguments above, I'd bet for sanity to prevail and the human will to survive and reconnect - bullish, even though its mad-like bullishness.

Remember that, when presented with a great unknown with an equal amount of uncertainty, markets will discount down and will overshoot. The 'what mights' are all tainted with worst case scenario ... but we should look at what is probable given that people will make decisions based on new evidence on the table, and new evidence is neither Britain nor the EU liked the ramifications. Thus safe to say, it is likely both sides will try and hammer out something which will keep the EU intact - because a nasty breakup will cause EU to disintegrate, and Britain will be whiplashed terribly being an export reliant market (to EU mainly).

Comments

bruno said…
Boris got heckled when he came out of his home,and had heavy police escort.He will be fucked by Brits for leading them like "pawns" into a political suicidal game.Just like Boris,"The Donald Trump" will be fuck left,right and center come November.But if his polls kept sinking,he might not even survive the revolt at convention.Either way,Donald Trump is fucked.
bruno said…
After Brexit,the Dow tumbled 1000 pts.And had since recouped nearly 700 pts.Is the Brexit scare over?Not by a long shot.Dow made a high of 18,388,and since have been in a 2,500 pts trading range.For the last year the Dow have tested 15,500-16,000 twicw,and 18,000 area three times.

The world is in a real financial mess.A couple of years back,I had said that interest rates will stay low for at least the next few years.With the QE still on going with the UK,Japan and EU,with added gravy of negative rates,interest rates will remain low or lower,for at least the next few years.Or maybe into the next decade.

Brexit or no Brexit,the market is primed to go down big time soon.The bull trap has been sprung.The fund managers and small investors are all bought into the idea that the current bull market will last forever.This bull market might go down in history as the longest or greatest bull market,to be succeeded by the greatest bear market (recession or depression) of all times.At least until the next greatest bull comes hopping around in the next century.

Third quarter will be a not so good for stocks quarter.But watch out.After the US presidential elections,no matter who wins,the markets will begin entering a bear phrase.If thunder and lightning struck and The Donald won,the greatest bear market of all times will begin overnight.If Hillary wins,it be be a slow and grinding Chinese water torture type bear market.

The greenback is already in the second or third year of a bull market.Last few months was not so good for the buck,but the best is yet to come.The next few years will see the Euro in the 70-80 cts range.Aussie,Kiwi and Loonie will be in the 30-50 cts range.You guys and gals better believe it.

With the "blimp" so bloated,I would be really,really shocked,if the Dow will make a higher high before the "Fat Lady" sings.

I think Brexit was a step down for us, i am working in a business administration in London and of us actually think that we will have more problems in the future, atleast i'm hoping it edns up that way and bring us something positive