Brexit-- Implications for Markets and Stocks

[rb]

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?

I agree with you about the sharp selloff. Though I don't think there's going to be much of a relief rally if they stay in. Things haven't really gone down so much on fear of exit, that's why the selloff if exit happens. Also yesterday was a pretty good day for stocks. So i don't think there's really much to rally from.

[John Hjorth]

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.".

 

Thanks for a comforting post from another European fellow board member, writser. My mindset is on overall basis like yours. I had the opportunity to pick up a good chunk of SAN at 4.00 a few days ago, but I was thumbsucking at that time. Now have it as an order at 4.00 in the market expiring the day before the vote.

 

Let's just see how this plays out.

[Ballinvarosig Investors]

I'm really confused why the polls and the better's market are so far apart.  What is going on with that?

Up until the the 16th of June, the Leave campaign had been steadily gathering momentum and at that point the vote looked to be on a knife edge. However, that day the British MP, Jo Cox was murdered by an anti-EU extremist. That was a turning point that in my opinion was decisive. Campaigning by both sides was suspended, and the wind was taken out of the sails of the Leave campaign. The fact that it was a Leave extremist that murdered the MP left a serious taint on the Leave campaign - undecided/swing voters almost certainly will jump to the Remain side because of it. With the momentum gone and only two days remaining, there is no time for the Leave vote to recapture the initiative. Remain is all but a done deal.

[Cardboard]

Good words of wisdom Writser.

 

I too have no intention to change any of my business and won't sell any of my holdings based on Brexit. However, I am tight for cash and margin right now, so it is not like I can easily take advantage of opportunities if they arise. That is a weapon that I don't have right now to "defend" myself against volatility.

 

I am also away on Friday and would hate to have my day ruined because of that vote. So layering some low cost hedges, in small quantities, with the VIX still at 18 or right around the 200 day moving average does not seem such a bad idea. Market is still expensive and just saw a huge 4 month rally. I have a feeling that it is Yellen and U.S. GDP growth around 0% that could cause some issues going forward Brexit or not.

 

And regarding this: "Jo Cox was murdered by an anti-EU extremist", it almost seems too coincidental. Leave was gaining momentum and this was certain to reverse it. One of the most likable person in parliament, brutally assassinated, in the opposition, young woman with two young kids. Could have been just a crazy guy but, not hard also to come up with a conspiracy theory. Did someone influence him?

 

Cardboard

[petec]

I'm really confused why the polls and the better's market are so far apart.  What is going on with that?

Up until the the 16th of June, the Leave campaign had been steadily gathering momentum and at that point the vote looked to be on a knife edge. However, that day the British MP, Jo Cox was murdered by an anti-EU extremist. That was a turning point that in my opinion was decisive. Campaigning by both sides was suspended, and the wind was taken out of the sails of the Leave campaign. The fact that it was a Leave extremist that murdered the MP left a serious taint on the Leave campaign - undecided/swing voters almost certainly will jump to the Remain side because of it. With the momentum gone and only two days remaining, there is no time for the Leave vote to recapture the initiative. Remain is all but a done deal.

 

I question how significant the murder was (especially because while the man was clearly an extremist, he also has a long history of mental illness).  I think we were always going to vote remain (sadly).

 

[wachtwoord]

 

And regarding this: "Jo Cox was murdered by an anti-EU extremist", it almost seems too coincidental. Leave was gaining momentum and this was certain to reverse it. One of the most likable person in parliament, brutally assassinated, in the opposition, young woman with two young kids. Could have been just a crazy guy but, not hard also to come up with a conspiracy theory. Did someone influence him?

 

 

I agree here that this 'conspiracy' theory at least has some non-neglectable chance of being factual.

[Ballinvarosig Investors]

I'm really confused why the polls and the better's market are so far apart.  What is going on with that?

Up until the the 16th of June, the Leave campaign had been steadily gathering momentum and at that point the vote looked to be on a knife edge. However, that day the British MP, Jo Cox was murdered by an anti-EU extremist. That was a turning point that in my opinion was decisive. Campaigning by both sides was suspended, and the wind was taken out of the sails of the Leave campaign. The fact that it was a Leave extremist that murdered the MP left a serious taint on the Leave campaign - undecided/swing voters almost certainly will jump to the Remain side because of it. With the momentum gone and only two days remaining, there is no time for the Leave vote to recapture the initiative. Remain is all but a done deal.

 

I question how significant the murder was (especially because while the man was clearly an extremist, he also has a long history of mental illness).  I think we were always going to vote remain (sadly).

I've been watching this far too closely. I agree, that this murder should have no bearing upon the result whatsoever, but yet it has. Look at Sterling, look at the FTSE for the last week. Since the murder, both have strengthened significantly since the event. The same happened a few weeks back when Boris made his gaffe about the bendy bananas and the comparison of the EU to a Nazi super-state. Sterling and the FTSE went on a huge tear on the back of that as the Leave campaign faltered. It's not remotely logical, I know, but I think the swing voters will always shy away from the controversial and choose a safe option.

[John Hjorth]

I'm really confused why the polls and the better's market are so far apart.  What is going on with that?

Up until the the 16th of June, the Leave campaign had been steadily gathering momentum and at that point the vote looked to be on a knife edge. However, that day the British MP, Jo Cox was murdered by an anti-EU extremist. That was a turning point that in my opinion was decisive. Campaigning by both sides was suspended, and the wind was taken out of the sails of the Leave campaign. The fact that it was a Leave extremist that murdered the MP left a serious taint on the Leave campaign - undecided/swing voters almost certainly will jump to the Remain side because of it. With the momentum gone and only two days remaining, there is no time for the Leave vote to recapture the initiative. Remain is all but a done deal.

 

I question how significant the murder was (especially because while the man was clearly an extremist, he also has a long history of mental illness).  I think we were always going to vote remain (sadly).

I've been watching this far too closely. I agree, that this murder should have no bearing upon the result whatsoever, but yet it has. Look at Sterling, look at the FTSE for the last week. Since the murder, both have strengthened significantly since the event. The same happened a few weeks back when Boris made his gaffe about the bendy bananas and the comparison of the EU to a Nazi super-state. Sterling and the FTSE went on a huge tear on the back of that as the Leave campaign faltered. It's not remotely logical, I know, but I think the swing voters will always shy away from the controversial and choose a safe option.

 

I have exactly the same perception from what I have been reading the last few days. Furthermore, I have read a lot from Scandinavian sources about the reliability of the Brexit/Bremain polls beeing biased, i.e. excluding/given biased weight in the poll compared to the total population of voters of Scotland and Wales, which regions of UK are known to be pro EU.

[writser]

Something I've been thinking about today: did the results of England and especially Wales soccer matches the past few days influences voters? It wouldn't actually surprise me.

 

Also, I agree that the Jo Cox murder was probably a net negative for the Brexit camp. The killer was too ****ing stupid to realize he did exactly the wrong thing to achieve his goal. I wonder if that's a small relief for her family or if it makes them extra angry. Such a tragedy ..

[Ballinvarosig Investors]

You can put a fork in Brexit, because it's done. Bookies have slashed odd for a remain down to 1/10. I suspect the result won't even be close, my guess would be 57%/43% in favour of remain.

[racemize]

What data are these bookies using that makes it so clear?

[Ballinvarosig Investors]

http://www.oddschecker.com/politics/british-politics/eu-referendum/referendum-on-eu-membership-result

 

not sure if that will work for folks in the US.

[CorpRaider]

Watching BBC one stream online.  Love the accents.  They have a guy on a graphic of downing street and lines representing the votes are going to come in.  The graphics are uh....amusing.

[Guest MarkS]

I've been watching the results come in on British television.  It's still early but Brexit is looking more likely.  This is going to be a nail biter. 

Mark

[racemize]

turns out, no one knew anything and the 50/50 was right...

[Jurgis]

Condolences to everyone who stood for united Europe. It is a sad day, a sad day indeed. We can only hope that the tide will turn again and Europe will come out of this strong at some point in the future. For now though, this future is in question.  :'(

[rb]

This is gonna be a total shit show ugh!

[Oreo]

This looks to me like a first step towards European disintegration, first of the monetary union and then free movement of people. Opinion polls in places like France and Spain are a dark harbinger.  Probably a 10-year process.

 

The only thing that is likely to save the EU is threat of war (e.g. Russia) but that won't happen, Russia is too smart. Russia is too busy doing a great job in weakening EU by creating refugee flows from Syria via bombing.

[goldfinger]

When is it that the Brits have ever been European? What a made up issue that is!  :o

[Oreo]

Perception vs reality.

[rb]

When is it that the Brits have ever been European? What a made up issue that is!  :o

The brits have always gone around acting like their shit don't smell. My guess is they're gonna live to regret this one.

[karthikpm]

Anyone know how fairfax is positioned on this issue?

[goldfinger]

When is it that the Brits have ever been European? What a made up issue that is!  :o

The brits have always gone around acting like their shit don't smell. My guess is they're gonna live to regret this one.

 

Agreed. They think they are smarter than the continental europeans...

[doughishere]

"The wrangling reflects the fact that there is no binding legal process to force Cameron to invoke article 50. In theory, he could ignore the public and disregard a Brexit vote. In practice he has repeatedly promised that the result will stick – and there may be no going back on that line now."

 

http://www.theguardian.com/politics/2016/jun/23/eu-referendum-legally-binding-brexit-lisbon-cameron-sovereign-parliament

[rb]

When is it that the Brits have ever been European? What a made up issue that is!  :o

The brits have always gone around acting like their shit don't smell. My guess is they're gonna live to regret this one.

I can't really put my finger on it, but i think maybe it was something a bit more like slick. When i lived there i got the feeling like their view was that if they screwed someone it was just a natural thing, but is someone gets the upper hand on them then it was a tragedy. Jut a bit of unsung arrogance.