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Brexit-- Implications for Markets and Stocks


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There is a longish thread on the pros and cons of Brexit, but I did not see anything addressing more market or stock specific discussions.

 

This is one of those unpredictable, but widely anticipated events. With an exit, the English stocks particularly those that need access to Europe will probably drop sharply. My thinking is to have a watchlist of those companies that are not dependent on European exports from the UK that may fall in sympathy.

 

(Of course there is a wild card that this could be turn into a Lehman type of moment, I doubt it, but it is of course a possibility. As is a surge of the FTSE.)

 

London real estate looks particularly vulnerable.

 

Specific companies to keep in mind: Lancashire (LRE.L) and Goodwin, with some EU exposure though.

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i am not sure i understand the reasons for the dire implications of brexit. 

 

seems like some fear it will be a first step to a break up of the EU.  is that it?

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There is a longish thread on the pros and cons of Brexit, but I did not see anything addressing more market or stock specific discussions.

 

This is one of those unpredictable, but widely anticipated events. With an exit, the English stocks particularly those that need access to Europe will probably drop sharply. My thinking is to have a watchlist of those companies that are not dependent on European exports from the UK that may fall in sympathy.

 

(Of course there is a wild card that this could be turn into a Lehman type of moment, I doubt it, but it is of course a possibility. As is a surge of the FTSE.)

 

London real estate looks particularly vulnerable.

 

Specific companies to keep in mind: Lancashire (LRE.L) and Goodwin, with some EU exposure though.

I think the rise/gains in the stock price will be baked in before the result is announced. Today for example, the gap between the Remain/Leave sides with bookmakers is the narrowest it has ever been in the entire campaign - FTSE stocks have already tanked in the last two days on that news. The market is already pricing the Brexit in.

 

Companies like Goodwin which don't have a heavy exposure to the UK won't go down too much regardless of what happens. On the other hand - financials and insurers are already being absolutely clobbered and are looking very interesting. Aviva is an insurer I thought I missed the boat on a few months back at £4 - the market is now giving me a second bite which I am taking.

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Here is Soros's world survey which covers the topic:

 

http://www.nybooks.com/articles/2016/02/11/europe-verge-collapse-interview/

 

His general thesis seems to be that the European banking system was gravely weakened by insufficiently timely/ concerted central banking action by the Germans particularly, and this has set the stage for various forces to split the EU, such as countries like Greece and Britain pulling out.  So if the response is large it will be more about EU fears vs Britain fears specifically.  The immediate economic impact on Britain specifically is considered to be minor:

 

https://woodfordfunds.com/economic-impact-brexit-report/

 

The problem, as we saw with Greece, is that although these events are not individually earthshaking they take place in a dual stimulative/ deleveraging environment.  The US/ EU markets are looking for a reason to crack, and if that happens to align with Brexit then that's what folks will blame it on.

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The US/ EU markets are looking for a reason to crack, and if that happens to align with Brexit then that's what folks will blame it on.

 

 

I think there is a bit of truth this, the problem is psychological. 

 

 

There no confidence in anything anymore? China, no. Europe, was there ever. Oil, look at a chart. Real Estate/Housing, look at where the GSEs are. Ive heard 3-4 guys say we are heading for Japan (Munger, Summners, Marks), Pick a US State... its in budget crisis....Simple things is you cant count on the old things any more and when you do that you stop making out lays of capital and start.....and thats just the financial side of things. Forget the rest of the worries that have always existed in a similar form or another.

 

From what gather and the musings online and such....I dont know why Yellen keeps doing the same shit quarter in and quarter out....pull your reliever he got you out of the jam already.

 

 

The Brexit thing by itself seems trivial....compounded with the rest its no wonder investors flee to bonds and bond like investments......I have no proof but I suspect that never normalizing policy(in any country) after risk of true collapse receded harmed confidence a great deal....Yellen is fighting the last war.

 

 

http://www.zerohedge.com/news/2016-06-15/deutsche-bank-if-one-wanted-simple-indicator-broken-financial-system-then-it

 

 

That chart makes teh Third Reich look like a better investment enviornment than Germany today....just saying.  Edit: assuming bond yeads are and indicator investor sentiment

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The US/ EU markets are looking for a reason to crack, and if that happens to align with Brexit then that's what folks will blame it on.

 

 

I think there is a bit of truth this, the problem is psychological. 

 

 

There no confidence in anything anymore? China, no. Europe, was there ever. Oil, look at a chart. Real Estate/Housing, look at where the GSEs are. Ive heard 3-4 guys say we are heading for Japan (Munger, Summners, Marks), Pick a US State... its in budget crisis....Simple things is you cant count on the old things any more and when you do that you stop making out lays of capital and start.....and thats just the financial side of things. Forget the rest of the worries that have always existed in a similar form or another.

 

From what gather and the musings online and such....I dont know why Yellen keeps doing the same shit quarter in and quarter out....pull your reliever he got you out of the jam already.

 

 

The Brexit thing by itself seems trivial....compounded with the rest its no wonder investors flee to bonds and bond like investments......I have no proof but I suspect that never normalizing policy(in any country) after risk of true collapse receded harmed confidence a great deal....Yellen is fighting the last war.

 

 

http://www.zerohedge.com/news/2016-06-15/deutsche-bank-if-one-wanted-simple-indicator-broken-financial-system-then-it

 

 

That chart makes teh Third Reich look like a better investment enviornment than Germany today....just saying.  Edit: assuming bond yeads are and indicator investor sentiment

 

and during these hard times, Buffett accumulates PSX and maybe other investments...

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The US/ EU markets are looking for a reason to crack, and if that happens to align with Brexit then that's what folks will blame it on.

 

 

I think there is a bit of truth this, the problem is psychological. 

 

 

There no confidence in anything anymore? China, no. Europe, was there ever. Oil, look at a chart. Real Estate/Housing, look at where the GSEs are. Ive heard 3-4 guys say we are heading for Japan (Munger, Summners, Marks), Pick a US State... its in budget crisis....Simple things is you cant count on the old things any more and when you do that you stop making out lays of capital and start.....and thats just the financial side of things. Forget the rest of the worries that have always existed in a similar form or another.

 

From what gather and the musings online and such....I dont know why Yellen keeps doing the same shit quarter in and quarter out....pull your reliever he got you out of the jam already.

 

 

The Brexit thing by itself seems trivial....compounded with the rest its no wonder investors flee to bonds and bond like investments......I have no proof but I suspect that never normalizing policy(in any country) after risk of true collapse receded harmed confidence a great deal....Yellen is fighting the last war.

 

 

http://www.zerohedge.com/news/2016-06-15/deutsche-bank-if-one-wanted-simple-indicator-broken-financial-system-then-it

 

 

That chart makes teh Third Reich look like a better investment enviornment than Germany today....just saying.  Edit: assuming bond yeads are and indicator investor sentiment

 

and during these hard times, Buffett accumulates PSX and maybe other investments...

 

 

 

You smell that? Thats the smell of opportunity.

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and during these hard times, Buffett accumulates PSX and maybe other investments...

Yes but because Buffett is computer illiterate he can't get to zerohedge so obviously he has no idea what's going on.

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Buy what's cheap and sell what's expensive. EM is particularly cheap. Europe is relatively cheap. The U.S. is incredibly expensive.

 

Don't worry about where/what the crisis will be - worry about the price you paid going into the crisis.

 

Good things happen to those that wait

 

 

Napier seems to think that Yellen is keeping rates low for the rest of the world.  Good interview, I admit it i have a small crush on Napiers ideas at the moment.

Part 1 -

 

Part 2 -

 

Managing Spillovers—Striking the Right Balance of Domestic Objectives and External Stability By Christine Lagarde

http://www.imf.org/external/np/speeches/2016/061616.htm?hootPostID=b6d1297da8b61cbf7dc92ff01e34298b

 

 

Tough job for the central bankers...i dont envy the task.

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Buy what's cheap and sell what's expensive. EM is particularly cheap. Europe is relatively cheap. The U.S. is incredibly expensive.

 

Don't worry about where/what the crisis will be - worry about the price you paid going into the crisis.

 

+1 - I can't agree more. This Brexit mess is simply put just a buying opportunity [like "the Greek tradegy" last year, Chineese "crisis" last year , and so on] if you think really carefully about what you are buying.

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Volatility ETN/ETP trading volume exploding as the world positions for the Brexit decision:

 

http://blogs.barrons.com/focusonfunds/2016/06/17/vix-etf-trading-goes-bananas/

 

On Friday, the VelocityShares Daily 2x VIX Short-Term ETN (TVIX) traded more shares than any stock on the S&P 500, trading 98.6 million shares — fully 10 million more than Bank of America (BAC). Meanwhile, the iPath S&P 500 VIX Short-Term Futures exchange-traded note (VXX) traded 75.8 million times — third of all ETPs — while the ProShares Ultra VIX Short-Term Futures (UVXY) turned over 55.4 million times, sixth among all ETPs.
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The Brexit crash will make all of you poorer – be warned

George Soros op-ed

 

https://www.theguardian.com/commentisfree/2016/jun/20/brexit-crash-pound-living-standards-george-soros

 

Damn, thats cold.

 

Don't ever trust Soros. In fact, don't turn your back if you don't want a knife poking out of it minutes later.

 

Who's next: JPMorgan and the Rothschilds?

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I am thinking of buying a relatively long term (Jan 2017) put spread to protect my portfolio ahead of this event and to avoid paying too much for volatility. The SPY seems to be best based on this:

 

Seems to me that we will get a relief rally if Brexit does not pass and a sharp selloff if it does or common thinking. However, Yellen's discussion around tightening will come back right away if it does not pass with a July rate hike and related fear ahead of time should bail my position.

 

What do you guys think?

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I am thinking of buying a relatively long term (Jan 2017) put spread to protect my portfolio ahead of this event and to avoid paying too much for volatility. The SPY seems to be best based on this:

 

Seems to me that we will get a relief rally if Brexit does not pass and a sharp selloff if it does or common thinking. However, Yellen's discussion around tightening will come back right away if it does not pass with a July rate hike and related fear ahead of time should bail my position.

 

What do you guys think?

The relief rally is already here. The insurer I started buying on Thursday is up 10% already. One of the British banks I bought is up 15%. Sterling strengthened significantly.

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My ramblings (the macro gurus here will undoubtedly point out how stupid I am).

 

1. Despite all the experts and polls predicting "a close race" a Brexit currently pays out 4 times at Betfair on significant volume. I trust the market rather than the pundits and am not that worried about a Brexit as others.

2. Even if the UK is to leave the EU things will probably not change that much. Yes, there will be panic in the short run but the actual leaving will probably take years (decades) and lobbyists, diplomats and bureaucrats probably make sure that the transition is as small and as smooth as possible. I am skeptical about the long-term influence of the outcome of the vote on the S&P 500. My personal belief is that it would be negligible in the long run.

3. The market is way too focused on the 'Brexit' vote - it is the event of the year. Buying insurance in whatever form is not a genius idea: it is the consensus trade so you probably pay too much.

 

So I do nothing special. I made sure I have a little margin / cash in case the market goes crazy on friday (as I always have). I should probably make a small watchlist with UK stocks I'd like to buy in case of a crash but so far I have been to lazy to do so. If I had to do anything I'd go long a Brexit on Betfair but I already put all my money there on Trump becoming president.

 

I basically agree with WEB on Brexit: "It wouldn’t change anything I did. I wouldn’t sell the farm I own. I wouldn’t sell the real estate I own. I wouldn’t sell my house. I wouldn’t buy a different kind of car. And I certainly wouldn’t change my investment in businesses. But -- I hope they don’t do it.".

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