Politically incorrect, narrative-free and relatively unbiased thoughts on #Brexit

21 June 2016 view all posts

I think

  1. …once again people have done the usual thing and have jumped to the polar extremes of the argument. Nothing is ‘black or white’ and there are trade-offs (risk/rewards, for the traders out there) to both remaining and leaving the EU.
  2. …whoever (‘remain’ or ‘Brexit’ supporter) shares a definite view on the British economy subject to ‘Brexit’ is an opinionated fool that either has huge conflict of interest or really doesn’t understand complexity in markets. No one really knows what could happen and the scaremongering of the 'remain' camp and uber-optimism of brexit-ers are both for attention and nothing else. If Britain remained in the EU not much would change. If it exited, given the current weakness of the economy, an immediate recession with severe weakness on GBP is not out of the question. However, after the initial shock is over the UK would have a great opportunity to rebuild itself much stronger, which could result in great long term prosperity or decades of mediocrity. But don't assume that remaining in the EU wouldn't end in mediocrity. So, the question is, do you feel like taking a bet?
  3. …most of the “experts” (i.e. empty suits – central bankers, consultants, academics, politicians etc.) are once again full of themselves and their prediction models are worthless. People outside of financial markets should understand that the so called “experts” have a prediction tracking error so wide it would make your head spin. Not to name names but back in 2014 the FED was predicting US rates to be 1% by 2015 and above 2% in 2016. Fast-forward 2 years and we are still at 50 bips. Those people have ZERO credibility and accountability so please, pretty please, whatever your decision might be, don’t base it on the ‘empty suits’.
  4. …most (not all) institutions expressing concern over Brexit are multinationals that don’t have the interest of Britain as a main priority.
  5. …the focus on immigration by the Brexit camp is absurd scaremongering and ultimately shows either the lack of understanding of the actual problems, or the actual hidden agenda that has nothing to do with the wellbeing of Britain.
  6. While we are at it, I think the Brexit campaign would have had a better chance if it was not led by characters from a comic book…and not the superhero kind.
  7. …the suggested number of jobs lost in the UK (mostly finance jobs in London) subject to Brexit is completely overblown. For centuries London has been one of the most important cities for finance and billion dollars’ worth of infrastructure and supporting services (inter-dealer brokers, clearinghouses and law firms) has been built throughout the decades with more already on its way. The UK dominates the global FX and Swap markets with 40% and 50% respectively of global daily turnover. I just can’t accept that everyone will just close shop and move somewhere in Europe.
  8. …the suggested decrease in the number of immigrants post-Brexit is similarly oversold to the voters. The UK needs immigrants and if you’ve lived here for some time and have an open mind you know that is true. Period. Say what you wish but positive net-migration has been good for Britain and other countries in similar economic and demographic situation (like Germany). There has been plenty of research (based on hard data without any prediction) that predominantly shows positive results (Source 1, Source 2).
  9. …the most ridiculous argument usually thrown in such situations is the ‘no one will do business with that country and the world is going to end’. Capital looks for yield and doesn’t care what politicians and economists think. If Argentina can default 8 times on its debt in less than 200 years and still manage to come back earlier this year with the largest EM debt sale I think the UK would be fine. By the way, if the Greeks were to exit the EU they too with their 5 defaults would receive an enormous amount of private capital. I even have shares in a Greek bank just in case of such a scenario (#SkinInTheGame). 
  10. ...the whole brexit charade has distracted everyone and has given an excuse for the evident slowing of the UK economy. However, I believe many investors will be slapped in the face once all this is over and they realise the UK is actually undergoing a late cycle slowdown (like the US). I’ve already had a round 1 with UK equities and GBP this year and will go on the offence once the referendum-driven volatility subsides.
  11. …the past 5 months have been a rather inelegant d*ck-measuring contest for power on the island between two lads that know each other very well from their years in Oxford colleges (and Bullingdon Club).
  12. In Conclusion, I think the woes in the EU will never be fixed with this bureaucratic attitude of ‘kick the can down the road’. I don’t believe #brexit will occur, but I do think that at some point there will be one courageous nation that will vote ‘Leave’ on such a referendum (plenty more down the road now that the fifth largest economy has opted for one), which will ignite the fire. As for future exit campaigners, think about using Ms Merkel’s own words as a campaign slogan: “Europe has 7% of the world’s population, 25% of global GDP and 50% of global social spending”.


As for my view, I think the following words by a City Hedge Fund manager best describe how I feel: "However, whilst I much prefer ‘Fixit’ over ‘Brexit’, if we do not get the former then I say ‘Feckit’."


Yours truly,

Practitioner of uncertainty


(Picture source: Hedgeye Risk Management LLC)