Monday, 27 June 2016

We are not without paddle UPDATE

Chart forFTSE 100 (^FTSE)

So on Friday the markets took a big bath first thing.

The sole reason for this was that many large hedge funds had gone very long, on the back of their own polling, on Remain. They had bought Sterling and the FTSE250.

By the time the markets opened they had to cover their positions. If you were on the other side there was money to be made. Odey Asset Management apparently made £220 million on Friday...the parties on the other side are no being so vocal it seems.

Then to Monday, George Osborne made a good speech this morning to try and soothe the markets over. As it happens, they do not appear to need much soothing as yet. The FTSE is off less than 2% and the Pound down another 2% - all typical Monday morning moves. The FTSE100 has never recovered from last September's sell-off and remains range-bound ever since.
Chart forFTSE 250 INDEX (^FTMC)
The FTSE 250 has taken more of a kicking since Friday than the FTSE100 as it is more UK focused

Of course, the Bank of England is in the background with its £250 billion liquidity offer that is helping to shore up the Banks.

In the real world, Banks shares have fallen and Property development companies, as well as UK focused retail businesses. This is as it should be, they are indeed the likely losers from Brexit. British Manufactures will in time be marked up as their products are more easily sold.

A fall in house prices and immigration is likely now with Brexit. Whether or not we go for EFTA (we should not, but we will is my current view) as the step back from the EU, some of the benefits of Brexit will be felt - as well as some of the downsides.

At the moment, such is the capture of the media bubble by London remainiacs that nothing will sate them and all is doom and gloom x10. It is for this reason I am surprisingly thinking we do need Boris as the next PM. Whatever his faults, he is great at optimism and for the next couple of years that will be very important for the UK.



Raedwald said...

If the timetable is holding, we should see a 20% drop in London house prices, a Greek default and the collapse of the Italian banks. The first will silence the horrible whine coming from within the M25 and the other two can serve to give us substantial BREXIT negotiating advantage for as long as we retain QMV share and have UKIP MEPS in the EP.

We also need to bag both London's top legal talent and commercial negotiators - I'd suggest an initial fee budget of £1bn is not unreasonable. It's time to show Brussels that the Inner Temple can mash the École nationale d'administration. Victory will involve gamesmanship, steady nerves and teamwork. And perhaps also the hand of God at crucial junctures. Time for the gentlemen to go out and the players to come in, I think.

Not too hard to persuade the City to play I think - if they nail this, they'll have international clients queueing up for a generation.

Game on!

Jim said...

There was definitely a lot of hot money piling into sterling on the evening of the vote - I've heard today of one person who has dropped 1.8m euro on his sterling position, he was betting on a Remain vote and a big boost to sterling in its wake. And got it spectacularly wrong.............

Anonymous said...

Raedwald - The Remains fail to mention that the EU is an economic risk to us if we stay.

Anonymous said...

Looks like bank shares may bounce tomorrow. Excellent time for dollar-rich companies to take a position in the latest European tiger economy.

A Barclays take over perhaps by Russians or Chinese - who still have a lot of dollars

Blue Eyes said...

I am optimistic.

Having said that, I was pleased that my instruction to buy into a FTSE 250 tracker first thing this morning was delayed, saving myself 7%.

Blue Eyes said...

Ps George should be preparing his successor's Recovery Budget for presentation at Autumn Statement time. It should include such things as a big cut in corporation tax and a couple of points off employers' NI. Maybe an announcement of a review of the VAT system.

When the Bank next meets, interest rates should be cut to 0.001% with a strong committment to pushing inflation up to its target.

Steven_L said...

Other than my tenner on England to vote "Leave" I was positioned for a remain vote and not in any way hedged. Odey's retail funds were all gold and US bonds, so maybe that's where the £220m came from? Maybe if the hedgies hadn't let slip they were paying for the exit polls, people would have been more honest.

So I'm about 20% down since Thursday. I reckon the stock market is pricing in a significant UK recession / rise in unemployment / house price crash / loan defaults.

I'm reckoning since that is worse case, and its already priced in, I'll empty my 'help to buy ISA', chuck the cash into my SIPP and double down on everything.

I'm just not convinced we are at the right stage of the credit cycle for that kind of recession. I think we are going to see a mild recession based on less business investment / people putting off major purchases. There will be no banking crisis IMO, so I reckon I'm going to load up on more cheap banks and finance companies.

Virgin Money is still my pick, £2 a share looks bargain basement to me.

James said...

At the risk of having missed out an obvious post somewhere... What are the reasons for not going the EFTA route?

Blue Eyes said...

EFTA/EEA would look like a sensible option, at least for the first few years, a soft exit. However it would be quite a hard sell given that immigration and national control were the big two arguments set out by Leave...

Steven_L said...

I don't reckon we will leave the EU at all.

Blue Eyes said...

That is a distinct possibility...

It will be quite difficult for the next PM to get the Article 50 legislation through a very reluctant Parliament. That could trigger a general election, which would turn into a re-run of the referendum... except with a much less clear choice between Ctrl-Z and Go.

Article 50 was brought in at Blair/Brown's behest (people will write books about their legacies!) and presumably it was designed to be less easy to use than a simple resignation from the Treaties, while also being the only plausible way of leaving.

But what on Earth would the constitutional consequences of a major EU country finding that it literally cannot leave the EU?

Steven_L said...

I think the proles will lose their stomach for a Brexit to be honest. The consequence are that we will all just have to learn to do what's good for us, in other words what we are told to do by our betters.

Let's say 'pro-Brexit' Boris is installed as PM (with a majority of 5 is it?) by the Autumn. Can he invoke Article 50 like he can declare war, or does Parliament have to pass a law? Does anyone know? I'm imagine the ECJ would be happy enough if the PM gave notice. So let's say he can.

But will he? By then the UK will have entered either a marked slow down or a single quarter of negative growth. 'Project Doom' will be in full swing. Business chiefs will be lining up say "If you invoke Article 50 I'm moving x thousand jobs abroad" and "We want to invest £Xbillion in the UK, but then you voted 'leave' and if you actually invoke article 50 we won't." And suchlike.

Plus he will know that as soon as he does it sterling will plunge, our credit rating will be slashed to the out regions of investment grade and not only the stock market, but the bond markets too will be set upon.

I don't think he will do it. I don't think he wants to be remembered like that. In fact he'll probably end up wishing he'd stuck with HIGFNY and penning witty articles.

Blue Eyes said...

I saw quotes from supposedly knowledgeable constitutional lawyers saying that the PM does not have the ability to unilaterally activate Article 50. That actually makes sense, as it is such a huge deal.

I enjoyed the comment from an EU official (I forget who) who said "If the UK treats the referendum as a non-event, then the EU is happy to treat the referendum as a non-event".

Electro-Kevin said...

Off topic but interesting to you, I hope.

64% of 18-24 year-olds did not participate in the referendum. Of the total of 18-24 year-olds in the country only 26% voted to remain.

Second to the closeness of the referendum the young being let down by the old is being used as justification for a second bite of the cherry.

Boris writes in the Telegraph that the Remain vote (being so close) needs to be accommodated.

Expect an attempt at Brexit Lite from him.

Steven_L said...

I think I'm going to open an IG index account, or try and log back into my Cityindex account, and get short gilt futures. And have a bet on Mrs May for next PM.

Anonymous said...

I've suggested elsewhere that the smartest route would be England and Wales to secede from the UK, but keep the pound as a currency union. Automatically out of the EU, Scotland and NI remain in the EU allowing proxies to be set up so to maintain access to the single market without being in EFTA itself. And since most of the Euro using principalities aren't official EU members there's a precedent for a in/out currency union...

I initially came up with it in jest, but the more I look at it, the more it looks like the kind of compromise where everyone wins.

Barnacle Bill said...

@ Steven_L
I'm one of the "proles and I'm in this for the long term. If my parents could survive the Blitz and all the rest of the horrors of that era for my future. I am certainly not going to back down at the first bit of hardship that Brexit may throw at me.
I voted "Leave" not for myself but to get my country back for my children and their children.
I think you will find us "proles" are made of sterner stuff. Paraphrasing the words of a great American: " ... ask not what the EU can do for you, ask what you can do for your country."

Suff said...

I'm starting a petition to parliament to replay tonight's match. I'm feeling sad and offended that we were only represented by young uneducated people.
Ps. Well done both our Rugby teams

Electro-Kevin said...
This comment has been removed by the author.
Electro-Kevin said...

Article 50 has to be approved by Parliament according to this.

With 2/3rds of Parliament pro EU and over 50% of the votership anti*, there is a serious disconnect between the people and their representatives. This is by design, I think.

We are stuffed.

(*a lot more than 50% are anti as I think most Remainers voted in fear)

Blue Eyes said...

Anon, I had a similar thought. It would be quite difficult, though! And while the EU membership aspect is solved, what about all the other international systems we take part in?

Electro-Kevin said...

It's the 1972 European Communities Act which demands that Parliament votes on such things. This is covered in the part of the Lisbon Treaty which mentions complying with a member state's 'constitutional needs' or something or other (from memory)

After invoking Article 50 we get told to shut the f*** up and QMV is adjusted to compensate for our mute seat.

If - in the highly unlikely event - our Parliament votes in support of Brexit I wonder if we have to pay £350m a week to the EU if we have no say.

Anonymous said...

@Blue Eyes - it would be horrendously difficult, although I suspect, for convenience, a number of those systems would simply 'grandfather' England and Wales in, but there'd be years of chaos.

As it stands we've got Gibraltar and Scotland trying to see about retaining EU membership even though the UK will have left... If successful, same outcome with less problems!

Anonymous said...

One legacy of Cameron which will be good for the UK going forward - no benefits for more than two children (existing 2+ families keep their benefits). This will imho impact most on low (or zero) income families who might otherwise have had many children, after 40-odd years of dysgenic policy where those least able to support a family have the most kids.

I've noticed in the last 20 years that the larger families tend to be either benefit-funded poor or quite well off with stay at home mum.

Now we need to create "affordable family formation" where Mrs Average can afford to take a few years out, rather than dropping babies off at 7am daycare.

Electro-Kevin said...

Anon 10.47 - You create an affordable family formation by making housing affordable.

Anonymous said...

No immigrants, no large families.. eugenics next?

Anonymous said...

Why not just shout 'Hitler' and be done?

We've had dysgenics for the last 40 years, and I've not noticed a shortage of immigrants lately, with one in three children having a mother born abroad. The other dysgenic factor is that the more tertiary education (a reasonable proxy for intelligence) a woman has, the fewer children she has. (Places like Singapore are trying to remedy this with financial incentives, but then they're starting from a higher level of intelligence anyway.)

Large families are fine, just not sure that the working poor's taxes should pay for them.

Jan said...

At least Blair won't be able to become President of the EU now. That is one of the most major plus points to the Leave victory!

hovis said...

Screw article 50, but no-one will have the stones.

Anonymous said...

Was it missing a "wet signature" too?

James Higham said...

Markets were always going to come back. Looking like Boris just now, Leadsom Chancellor, Gove special negotiator, with Redwood, Mordaunt, Patel in there somewhere. No GE.

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