10 thoughts post Brexit

1) By resigning and allowing the new PM (favoured to be Boris Johnson?) to decide when to activate Article 50 (the official notification of the UK's intent to leave the EU), David Cameron has pushed back the timetable for an actual Brexit indefinitely.   The UK can (and perhaps will) use the Article 50 notification a a bargaining chip (akin to threatening to open Pandora's box) on a number of sensitive issues, and there is a nonzero probability that it is never invoked.

2) You'd have to think that Scotland will hold another independence referendum if and when Article 50 is tendered, as will Northern Ireland as soon as the Catholics constitute a majority, and Gibraltar.  This in turn opens the door for Catalunya, etc.   Not exactly great for national stability.

3) More generally, the Leave vote represents the same type of "take back control/make our country great again" that has characterized politics in the post-crisis era....as well as the 1930's.

4) EUR/GBP (or the EUR generally) continues to look like a sale; the biggest loser in all of this has been EZ banks, down a whopping 18.5% on the day.

 5) On the plus side for rationality, at least 10y BTPs now yield more than 10y USTs for the first time in a while.   On the other hand, would you be willing to bet that this is the top in the Bund/BTP spread?  

6) The RMB devaluation has continued apace.  Perhaps this has been in anticipation of a correction post Brexit or Fed hike?  We shall see.  Regardless, Macro Man calculates that to keep the basket steady, USDCNY will need to fix higher by 606 pips on Sunday night (given current FX moves elsewhere.)   He would guess hat we see it fix up 450 pips or so, allowing a small upward move in the RMB vs the basket.   (Obviously these figures can change if there are large intraday FX moves in NY.)

7) Kocherlakota sent out a tweet saying that safe haven demand for UST has reduced medium term r* and thus mandates a 25 bp cut in July.  Really?  Are the academics so wedded to models that they cannot distinguish a short term reaction to an idiosyncratic event from a fundamental medium term shift?   Good riddance from the FOMC.

8) That being said, at one point Jan Fed funds did price year-end FF some 7 bps lower than current levels.  At the time of writing, the market's priced for rates 1-2 bps lower.     While it's pretty clear that that the Fed is on hold til Brexit blows over (which may well run into the election), it looks a pretty decent bet to sell on a revisit to the highs.

9)  While Macro Man's model nailed the low in FTSE futures, its cable forecast was too low by about 7 big figures.   Still, it got the neighbourhood of the move correct, so he's generally pleased.   Given the bounce in the FTSE today, you'd have to think that Spooz will also try to rip higher at some point.   How the market reacts will tell you quite a bit about mindset and positioning.  (though again, remember that there is likely to noise from China on Sunday night.)

10) It may be spiteful, but given how difficult the UK immigration authorities made it for your author during his lengthy residence in the UK,  he can only hope that British tourists get to experience the magic of sweaty 2-3 hour passport queues as they descend on the Costa del Sol, Algarve, etc in years to come.
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Anonymous
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June 24, 2016 at 2:37 PM ×

10. You're right, it is spiteful and not becoming of macro man. Maybe it will be akin to anyone other than an american trying to pass immigration at any US airport (in all their 1960's "glory").

Come on, MM... you're better than that!

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Macro Man
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June 24, 2016 at 2:50 PM ×

I was a week from getting kicked out of the country despite being a long term taxpaying resident married to a UK national, who always got screwed by passport queues when travelling alone. The UK needs to remember that free movement works both ways.

And yes, the US border guards with their rottweiler manners are also very unpleasant and ill-managed.

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Anonymous
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June 24, 2016 at 2:55 PM ×

Come on, Anon2:37 ... MM IS better than that ... a brief moment of spite with a wee bit of humor is quite alright on occasion, OK?!

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June 24, 2016 at 3:08 PM ×

As petty as it is I commiserate with MM, as a US citizen living in the UK for 5 years and also being married to a UK citizen it was painful dealing with immigration. I left before they tried to kick me out though!

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June 24, 2016 at 3:19 PM × This comment has been removed by the author.
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Anonymous
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June 24, 2016 at 3:25 PM ×

A nice 50pt decline in the S&P ... can we start calling it "Black Friday" yet?

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Anonymous
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June 24, 2016 at 3:26 PM ×

Why didn't you guys (MM and Marshall) didn't apply for Indefinite Leave to Remain?

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Anonymous
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June 24, 2016 at 3:34 PM ×

It always astounds me how Brits are regarding immugrants from EU so negatively. Seems to me their fault is working too hard and being too entrepreneurial.

Here in Northern Europe we'd love to have such "problem" migrants.

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Macro Man
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June 24, 2016 at 3:53 PM ×

@ Anon 3.26...because thanks to the vagaries of the immigration rules, I didn't qualify.

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Anonymous
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June 24, 2016 at 4:00 PM ×

For the life of me, I do not understand the desire to want Dresden, Salzburg, Vienna, Avignon, and Bath to be like Kabul.

and the macro data in USA is a disaster across the boards

Durable Goods -2.2% vs -.5% est
Cap Goods ordered Nondef Ex Air -.7% vs est +.4%

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Anonymous
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June 24, 2016 at 4:30 PM ×

$VIX on fire this morning, currently +24.9% today. Last: 21.55

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June 24, 2016 at 4:41 PM ×

Anon @ 3:26 - My immigration status was tied to my employer. This kind of immigration work permit didn't allow me to remain in the UK indefinitely. I could have left the UK, applied to immigrate based on my UK marriage certificate but I would not have been allowed in the country while they made the decision (which could have been many months away from my wife and family).

Getting my British wife to the US wasn't a whole lot easier! If Scotland does have another independence ref, here's hoping they streamline immigration rules to attract valuable human capital...if there are any jobs for my line of work left (oil and gas).

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Anonymous
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June 24, 2016 at 4:41 PM ×

re 10. Do you think Spain, Portugal & Greece etc want to lose tourism from the UK? Are their economies really that strong?

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Jim
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June 24, 2016 at 4:42 PM ×

"There’s a coffee machine near my desk and that’s about how far I’ll go.” - Vol trader today

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Macro Man
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June 24, 2016 at 5:00 PM ×

@ Anon 4.41 Do you really think UK citizens will want their summer holidays in Margate and their winter ones skiing in Wales?

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Anonymous
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June 24, 2016 at 5:10 PM ×

You can buy all you want but there will never be a payout

ISDA: UK Referendum won't have immediate impact on legal certainty of derivatives contracts

http://assets.isda.org/media/44732834/ffeb5e0e-pdf/

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Anonymous
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June 24, 2016 at 5:12 PM ×

CDS for sale
CDS prices vs yesterday
JPM up 23.4%
Citi up 25%
BAML up 25%
GS up 24%
MS up 23%

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June 24, 2016 at 5:36 PM ×

MM - To be fair I had some remarkable powder days in the Cairngorms. One great day I bagged a nice cliff line on the Pass of Ballater (lat,long: 57.060702, -3.044518) Never got around to the north face of Ben Nevis though. Still on my bucket list.

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checkmate
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June 24, 2016 at 5:46 PM ×

MM,
Re "Margate" I have to point out that in the dark days post 2008 the UK tourism Industry actually enjoyed the benefit of doing exactly what you don't think they will do. Needs must the devil drives. If FX continues to be an issue (and that is by no means likely) then StayVacs has they are known will likely come to the fore again.

Anon 3.34
You have fallen straight into the logic trap so many have piled into before you. The assumption you make is Brits hold immigrants negatively etc etc. I think you will actually find most of the out vote (the extremists notwithstanding) don't think this way at all. They do however have a very negative view of uncontrolled immigration and all of it's very many micro effects upon the world they inhabit....transport ,housing , education, healthcare to name but a few. Most of Europe have no concept of this at all simply because you have not had to cope with the huge numbers involved. In that it is then very easy to decry the concerns of others when in fact you have not had to experience them yourself.
The truth is the EU never connected all the dots and really understood how very skewed the effects of free movement were going to be...did anyone really see it coming?

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Anonymous
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June 24, 2016 at 6:11 PM ×

All the anti-Brexit comments written by total fuckwits who are so clueless it beggars belief.

Wake up. The UK, a large portion of Europe, and a large portion of the US do not want:
- Corrupt, undemocratic elitist politicians
- Uncontrolled immigration, with criminals and rapists attacking the population (and don't dare speak out, because the left-wing fuckwits will label you as racist)
- Corrupt multinational companies buying politicians, refusing to pay tax and offshoring jobs, resulting in hollowed out communities and economic/social deprivation
etc etc
- Non-functioning financial markets where CBs (read taxpayers) waste billions on unsound monetary policy, and corrupt financial institutions fleece Main St on a daily basis
etc etc

The tide is turning. I am building my guillotine...

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Anonymous
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June 24, 2016 at 6:30 PM ×

checkmate,

You're talking about "uncontrolled immigration" as if no other European country had it. I mean really... The difference is that Britain gets the cream of the cream of the global crop.

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maelstrom
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June 24, 2016 at 6:32 PM ×

Well there go the gains from our XIV position (cost basis @$24). We'll continue to hold here and potentially add to a few U.S. and European ETF longs. Am I the only one that see's this market action as a bit over extended? Not that gut is a valid investment tool, but I'm also leaning toward this whole thing blowing over in a month with the eventual result of the UK getting a few concessions from the EU and staying put. I'm probably wrong, but I'm going to nibble a bit today.

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Anonymous
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June 24, 2016 at 6:33 PM ×

Well, I'm surprised that anyone was surprised by this outcome. As long as the polls were close, Brexit was going to win. How to know? Look at the 2015 UK elections and why the polls were wrong then . . . Tory voters are underrepresented in the samples.

http://www.theguardian.com/politics/2016/jan/19/general-election-opinion-poll-failure-down-to-not-reaching-tory-voters

http://www.telegraph.co.uk/news/general-election-2015/politics-blog/11695816/Why-did-the-polls-get-it-wrong-at-the-general-election-Because-they-lied.html

http://www.bbc.com/news/uk-politics-32751993

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Anonymous
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June 24, 2016 at 6:36 PM ×

worth noting the huge numbers of UK citizens who own holiday homes (and those who live abroad - OAPs) in Ireland, Spain, France and Portugal - what'll happen to them?

I can't see the UK leaving - I think they will negotiate a new / better deal and in true Orwellian style create some legal term to disguise their status in Europe

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Macro Man
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June 24, 2016 at 7:10 PM ×

@ Anon 1.11 Might I suggest that you be the first to try it out? Any country with a first past the post voting system complaining about undemocratic institutions is a joke. The last non-coalition UK government to win a majority of the popular vote was in 1931.

"uncontrolled immigration with criminals and rapists attacking the population.' Agreed. It's a disgrace that the rest of Europe has had to put up with English football fans for this long.

"Corrupt multinational companies refusing to pay taxes." Goodbye Luxembourg, hello Isle of Man/Jersey/Guernsey.

Non functioning markets where CBs... Carney's still in charge.

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Anonymous
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June 24, 2016 at 8:09 PM ×

Think you are getting a bit emotional now and your social class is probably not best qualified to talk about "soccer" or their fans. I prefer Cornwall to Margate by the way.
Had a bad day?

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Macro Man
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June 24, 2016 at 8:14 PM ×

Any day when some would-be Brown Shirt twat pollutes this space by bragging about building guillotines is a bad day. I was a season ticket holder at West Ham for 4 years who had the "pleasure" of sitting next to a BNP supporter for one season. I feel quite competent in speaking of certain types of football fans who would do a disservice to any country,thank you very much.

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Swiftie
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June 24, 2016 at 8:22 PM ×

Always agreed with many here that the long-term outlook is much brighter for US equities than euro. But if now isn't FINALLY the time to go short spoos long stoxx, if tactically, when is?

Had nothing but a few small options over the Brexit event, better that way. But now I have to get properly long vix again! Ambivalent about that.

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Anonymous
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June 24, 2016 at 8:23 PM ×

Wow 4 years well done.I have followed football a lot longer and have never come across the type of fan you talk about. Also living outside the bubble of London and not restricted to the financial community I can understand the concerns that lead to this vote today.

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Leftback
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June 24, 2016 at 8:34 PM ×

Not much joy for the first wave of 9.45am Dip Buyers.... they are well under water now, spoos at the lows of the day. The first realistic support level for SPX seems to be at 2020, which is also the 200dma.

We are already hearing from the type of Pavlovian f*ckwits who have been conditioned to think that bad events are all unequivocally good for Spoos "b/c the Fed is on hold". Indeed, a July hike now looks unlikely, but DXY is up anyway on risk aversion, as we had suggested!!

Market direction is now largely a question of where the USD goes from here. You have a choice of holding $, raising more $ by selling risk assets, or buying risky assets into what looks like a slowing global (and eventually US?) economy.

Today's trading, as MM indicates above, shows that the European banks are down 15-20% across the board, now only 10% or so above 2011 and 2012 Europanique lows. One imagines that there might now be a few solvency risks in that group. Readers will remember that Nico and LB both warned punters to stay away from that group a week or two ago.

We have seen these type of trigger events occur several times over the last few years, and even if there is relative calm for a day or two after the big dump, there is almost always a slow trickle of forced liquidation that carries markets substantially lower in the aftermath. Someone out there now has a very nasty looking portfolio and will have to raise some cash. Every time this happens there is also that group of punters that is in disbelief and denial for the first day or two and then start to sell.

The follow through in Asia will certainly be interesting on Sunday night. BoJ can obviously step in and sell ¥ to defend USDJPY 100 as they appeared to do overnight, but among other things that simply makes USD stronger and puts more pressure on emerging market and other USD-denominated debt. China also doesn't have a lot of room to maneuver, and so the USDCNY fix seems likely to move inexorably toward 7.00. A renewed bloodbath in emerging markets looks to be ahead of us. Who would buy Brazil or China here?

DX spiked to 96.70, then pulled back to 95 today, but that looks like being solid support from now on. With Europe clearly in disarray, the bar in terms of US economic data will be a lot lower for FX punters looking to flee to relative safety. Not sure that another run to 100 is on the cards but one can't rule it out, especially if US data are decent for a while. A firmer dollar means lower commodity prices across the board, with the possible exception of gold.

A few weeks ago, we mentioned the oil spike to $50 as a weird lower energy echo of 2008. If the pattern repeats, crude will be decimated. Seasonal demand, technicals and a firmer USD are all pointing to much lower prices for WTI in Q3.

Anyway, thank goodness we have something else to talk about now other than Dame Janet and the Rising Bullard. Monday is going to be another very interesting session.

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Macro Man
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June 24, 2016 at 8:47 PM ×

@ Anon You are either 12 years old, not much of a fan, or have Arsene Wenger's eyesight if you've never seen bad behaviour from England fans.

1) 1995 match in Dublin abandoned

2) Euro 2000 England fans riot

3) Euro 2004 England fans riot

4) West Ham-Millwall 2009

5) And of course, this year's riots.

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checkmate
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June 24, 2016 at 8:51 PM ×

Anon 6.30
Your comments were so ill considered that it is difficult to know where to start to address them. What we see today has been probably over a decade in the making.Not simply a year or two of middle eastern turmoil. Year on year a constant seemingly never ending stream of bodies requiring ever more of public services that have been under huge pressure in terms of budget for a good 7 years now. The numbers over such a period dwarf the Europe that you are referring to in terms of scale. As to the 'cream' you clearly have not been venturing abroad around the UK. Has might be expected there's been a random and motley mix from the desirable through to the completely unacceptable. Shock horror that some reasonable people think they might improve on this outcome by having a policy that controls the inflow based upon need. You want to blame someone then start with arrogant European politicians so self absorbed by theirown career prospects that they fail to connect with the concerns of people who simply have to pay their costs without any tangible controls.

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Anonymous
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June 24, 2016 at 8:57 PM ×

53 actually. never seen any BNP or rapists to my knowledge. Lets just agree you are out of touch with the views of us uneducated working class north of Watford football fans and investors. My advice is stick to what you know which is obviously not UK politics.

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Macro Man
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June 24, 2016 at 9:07 PM ×

No, let's agree that by virtue of being married to a working class Lancashire lass, I have decent insights into that cohort. I also understand the Brown-shirted Internet tough guys channeling Enoch Powell such as yourself. I just find them rather pathetic and fact free, that's all, like their spiritual predecessors in the 1930's and their partners in twatitude such as Trump today. There is a reasonable case to be made for Leave- calling those who disagree with you "fuckwits" and crowing about building a guillotine is not it. Kindly go away.

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Anonymous
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June 24, 2016 at 9:07 PM × This comment has been removed by a blog administrator.
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Anonymous
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June 24, 2016 at 9:25 PM ×

I would like to reclaim my subscription please.

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Bruce in Tennessee
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June 24, 2016 at 9:42 PM ×

Well, this is an interesting day...

I would just like to say this is one of my favorite visitation sites, and thanks MM for answering my posits on your previous post.

I for one don't care if my great great grandchildren are darker than me, my Caucasian status is just an accident of fate anyway. However, I am concerned more about some religious groups not be able to assimilate into democracies....this experiment in the US and Europe primarily, has gotten us away from the "off with their head" rulers of previous areas and eras of the globe, and it would be a shame that in a couple of centuries we were back to some kind of Theocracy...with teeth...

The US and its allies have really, really bungled the middle east...we seem to have the foresight and common sense of a serial killer...




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Anonymous
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June 24, 2016 at 9:44 PM ×

Kind of ironic you're "improving the outcome" by "controlling the inflow" of migrants, starting from the ones who are net contributors!

But this is how it's always have been: poor people burn their own neighborhood in riots, because they can't afford transportation to better locations, or in Britain's case can't read bus schedule.

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Skr
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June 24, 2016 at 9:55 PM ×

Ah Fuck it lads, it's a Friday, Markets and world issues will be still there next week.

Enjoy the weekend!

https://youtu.be/Lo2qQmj0_h4


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Polemic
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June 24, 2016 at 10:02 PM ×

So where from here? I doubt that the big flaws in GBp have even really started. This mornings 'not since the last time' headline dumps were a result of no market makers buffering risk, algo fkfest and no one abe to do anything at their price. Not like the old days etc.

UK has two years to tidy the details up and as long as it has falling GBP and remains in EU regs it will just be getting more competitive. Hugely 'interesting time but we should welcome new opportunities instead of being terrified of the EU shadow

Business will follow profit. FX adjustment is significant and though I think 1,60 is cable's natural level a push lower can only help us ( not withstanding a GBP crisis).

I just had a lovely note from a kiwi friend warmly welcoming us back to old Free Trade Agreement style of life. It will all be Ok,

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Anonymous
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June 24, 2016 at 10:05 PM × This comment has been removed by a blog administrator.
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Anonymous
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June 24, 2016 at 10:06 PM ×

Fully agree with Pol's post above, one of the few reasoned things I've read today.

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Macro Man
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June 24, 2016 at 10:21 PM ×

I find it ironic that various anons complain about undesirable immigrants coming in and causing trouble, then visit someone else's space and start spewing bile and insulting the host. In the spirit of their policy prescription, consider the open borders to be closed and the undesirables to be deported. Anyhow, it's much more fun to discuss the economic and market impact of this and forthcoming votes rather than hear random political opinions, which could not possibly be less interesting.

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Anonymous
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June 24, 2016 at 11:12 PM ×

So back to Brexit & markets...

Cameron has resigned (good riddance), now what about Osborne? AEP in the Telegraph puts it best: "...collapsing borrowing costs expose the fallacy behind George Osborne’s ‘punishment Budget’. There was never any chance that Parliament would enacted his demented plan to crash the economy with a violent fiscal squeeze when macro-economic logic called for the exact opposite. His credibility is shattered. He must go immediately..."

It's vital that the UK has a proper Chancellor asap to guide the economy. For large Banks and the City, it's business as usual. Change will be enacted over years, and by then the EU will have collapsed anyway.

Folks, Europe is a mess, but other global markets such as the US will see safe-haven bid. Give this melodrama a couple of weeks and we'll be back to business as usual. Ignore the media hysteria, Brexit is only hours old and the melodrama is already lame & boring.

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Carry Trader
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June 25, 2016 at 2:56 AM ×

Interesting the EUR is holding up relatively well verses the GBP. While there will be net positives as some financial jobs shift to the continent, the direct consequence of the results today is the heighten the broader political contagion risk across Europe.

After all if a similar referendum is held in EU today, how many other countries will vote to leave? The level of dissatisfaction cannot be ignored.

The European banks are just the canary and agree with LB on dollar resuming rally based on risk off, irrespective of rate expectations. Sold EUR/USD.

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Booger
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June 25, 2016 at 9:23 AM ×

I am going to be looking to go long eur.usd and gbp.usd next week, probably on Monday, when the dust settles. I think gbp.usd 1.3-1.35 is good value.

Yesterday, the consensus was that Brexit was a certaintly and people were going long gbp.usd at 1.5, when the upside from Brexit was possibly to 1.52. Now everyone is bearish gbp.usd at 1.36. Nothing has really changed, just some people cleaned out by newsflow and being on the wrong side of that. Everyone is now taking the predictions of a U.K and EU recession in H2 as a given, breakup of the euro etc etc which to me seems quite premature.

I wonder whether the safe haven flow to the dollar has peaked in the short term now that Brexit is over. And with Brexit occurring the Fed is out for July, September and probably the rest of the year. I doubt that Brexit will be enough to generate significant risk aversion. It was anticipitated by everyone (some were on the wrong side) but it is not a completely unexpected surprise and not something the authorities cannot support with liquidity provisions. So against current expectations, I think next week sets up as a possible week where the dollar gets taken to the woodshed.

I think there could be a mudslide and full on risk aversion later this year, if the U.S economy does move into a recessionary pattern, but that isn't likely to be next week.

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hipper
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June 25, 2016 at 10:37 AM ×

So now that the myth of the gradual hike cycle is blown out of the water, was brexit really the reason or did it just skip the rest of the pretending path? It just seemed like a cheeky way to back out of a corner, though tbh they could've just as easily waited for bad data like durable goods. But it seems to more confirm that much more important is maintaining the relative gap between what ECB/BOJ does than to go on their merry way. The FX algorithms might do well to implement some kind of a CB credibility modifier. I just wonder if there can be a new Lehman blowup with CB dams ready to release a tsunami of liquidity on every potential fire hazard target, or is it more likely a very slow global stagnation occurs? The world trade volume was hovering around 2% for many years, now it's only 0%.

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Polemic
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June 25, 2016 at 11:09 AM ×

Mood is going to be hit in the UK. the number of messages I have had in the last 12 hrs along the lines of 'Jesus fking christ what the fk have we done!??' is legion.

The weekend press is going to be biased towards fear. That's the press's modus opperandi, I do anticpate a backlash from the remainers and Scotland doing everything they can to stay in EU means a potential break up of what is left. I would love to think that UK can become a Singapore on Europe's door step, a model of efficiency, but I am really concerend that that may not be possible without a benign dictatorship. And no, despite what many think, we do not have one. There is a risk of us unravelling further before we can reknit as something really strong. It is going to be up to industry and business to make something of this because the politicans are in a mess. Do we have any leaders at the moment?

So Booger. I recommend hanging on before piling in for a bounce. This isn't like an NFP or post data shake down, there is a griding bigger seismic response out there to see through. Though I have covered my infamous 1.4000 cable sept puts during the chaos of the first massive moves I would not be surprised to see the a grind below 1.3000 or even 1.25 as large structural money risk adjusts before any long term hope and flow back in could be expected., even if that is the long term logic.

Pol

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checkmate
admin
June 25, 2016 at 11:45 AM ×

The UK was struggling with zero growth post 2009 and it wasn't until 2013 that some bright spark realised that wasn't going to change unless they could kickstart the housing market with all of it's associated bit's. They did that back around 2013 and suddenly the noise went from 'sick man of Europe' to what an outperformer we are. Be aware that changes in policy dating back to last year were always going to kick in and put this market back where it belonged which frankly is stagnating. Disclosure , I did use the interim to offload all things property other than what I live in. IN conclusion, fingers are going to point to Brexit and recession and make some sort of correlation between the two. I have no doubt some action in London/SE will reflect that issue just has it does so when moneyflow is righteous ,BUT GDP growth was always going to slow back down in the UK simply because Osbourne has already policy changed it into being. The only real question is will it be a return to zero growth OR will it in fact qualify to be a recession according to the usual method for defining same. I suspect few will be interested in the nuances of my observations preferring the simplistic Brexit connection which will dovetail nicely with their need to fit the action to their preferred ideology.
Banks, Insurers, Builders etal were always going to show some periods of falling activity. This might just now be exaggerated a bit. The BTL lenders and there are some more heavily engaged in that than others will take a bigger knock.
I'd add on top of that seasonal dynamics probably limit any bounce. People might be uncomfortable immediately selling into a double digit fall on selecteds ,but any tangible bounce that promises to balance out risk and reward is an invitation to reload against forward earnings news.

Now I believe we have a petition with about half a million signatories to have another referendum. They only need another 17 million and they'll have a real case for it ;)

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Polemic
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June 25, 2016 at 12:06 PM ×

Checkmate . not sure i agree that UK success was based ona concerted effore to push up hose prices. A symptom not cause of success perhaps. I would still base it more upon a more competive business environement and skill base.

Last line is the killer aand thought exactly the same. Democracy backlash. Always tough on such a close vote on something so important. the demand to have another go by those who failed. If this route is to be pursued it would be more sellable to say we want another referendum once it is clear what teh alternatives to EUreally are. i.e once the mandarins and politicos show us hwo they are approaching the alternaive, But thne that was what was meant to have happened over th pat 6 months and even without i9t people voted out so in a way you cant say ' I want a revote because people who didnt understand the issue as I do voted against me'

One alternatoive would be to split the country in half, one half in and one half out and just move to the part you agreee with. Bit of an irony in that remainers want freedom of movement but wont move to get it, but thats an aside.. IN effect that country spliit is what we will get if Scotland does manage to leave and join the Eu and htey are probably right to realise that tghe vote with your feet alternative would indeed see the likes of finance and Nissan move north of the border. the equation for scottish independence has hugely swung leave if you include a difference in EU membership in the vote.

Though I like to think this will all sort itself out, a spivvy trade may be to go long Crofters cottages. You either get a pick up in value as fashionable retreat for Edinburghs new uber.rich ( oh hang on ,, forgot about Scottish Independence party tax proposals) or from huge demand form the population to run away and hide!

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Bruce in Tennessee
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June 25, 2016 at 12:16 PM ×

http://www.marketwatch.com/story/how-brexit-horribly-blindsided-investors-in-5-charts-2016-06-24

Arif Husain, head of international fixed income at T. Rowe Price, had this to say: “Those who believe Brexit is a U.K. problem are misunderstanding the impact it will have globally. They’re forgetting the impact that Greece had—and Greece is much smaller than the U.K., and not a financial center. The vote to leave could result in a global recession. It is likely that the chances of a global recession have risen above 50%.”

...SDS, come to Daddy! TLT and AU are doing ok so far...

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Polemic
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June 25, 2016 at 12:26 PM × This comment has been removed by the author.
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Polemic
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June 25, 2016 at 12:28 PM ×

Could.. could could could . .uselesss word. At least he put a probability which most using the word don't but
even then I disagree. Greece was about the immediate default of debt on the issuers and the knock on. It was also about how policy towards greece , if allowed to default, would imnpact teh toxic debt of the other pigs.. the contagion. UK is different.

The global effect COULD occur if everyone panics because they think brexit COULD lead to depression. A lot of circular arguements out there too being used

Now, if he is actually saying the gilts market is fucked that is different issue and needs to be separately discussed. But with most of the dependence on outcome to the eocnomy resting upon confidence and that confidence based on supposition and unknowns then telling everyone that everyone is fucked is most likely going to heavily increase the chance of fuckedness.

Much as Carney telling the world he effectively had financially sent riot poolice into teh cities, launched all bombers and primed the nukes ,so don't panic, caused more panic than it prevented.

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checkmate
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June 25, 2016 at 12:39 PM ×

Looking back I only really see two factors worthy of consideration for the so called Uk transformation. The first I have mentioned and the second (not unconnected if you live in London) was that sterling was and had been relatively weak as befits the sobriquet of 'sick man of Europe' and I dare say that played some part in exports and inwards moneyflows mostly captured by the S East. Let's be frank was it ever really different to that in the decades preceding this? Devalue and pop then throw in some housing. Pol in the better part of 40 years I have ridden UK housing to the moon and back and the dynamics have hardly ever really changed although people always seem to greet them has though they are somehow new.

Re Scotland for us to be zero sum or marginally better off out of Europe Scotland should leave the UK and perhaps NI has well. Although we Northerners typically hate it the fact remains that wealth transference via the tx channel to the public sector has been the only thing keeping many regions of the UK afloat in the face of globalisation. Few have been net contributors. Most Net takers. Back when we fought wars requiring many stout bodies for cannon fodder then such transfers were absolutely necessary to safeguard our shores. Not so much these days. Hence , those portions of the UK has we know it IF they wish to continue to receive wealth transfers might best be advised to leave and add to the pile that already constitutes the majority of the much vaunted EU. The EU wishes to expand does it not. The regions mentioned appear to wish to stay EU. The reduced UK wishes to profit from being outside the EU. Then it appears win win allround to follow the path of separation. London can breath a sigh of relief with less of it's revenue being diverted to regions mayhap it may find it's changed status not so onerous has first thought.
I loathe that saying 'we live in interesting times' ,but in this case we really do.
Taking my tongue out of my cheek now let me say this. I think a lot of onlookers don't understand some of the nuances of what is happening and they get the wrong idea about the way some Brits are feeling, thinking and acting. I know hardly anyone voting for an EU exit who has any negative feelings about fellow Europeans. I know many who have negative feelings about European politics/Policies and politicians. There's a huge distinction. I also know few who would wish to stop Europeans freely visiting this country for vacations or business ,or indeed work with an appropriate visa. LO not much different to the US or Australia etc etc ,but this is unreasonable for the UK? Begs the question , why?.

The irony is if the UK was a company that had no recruitment policy that filtered how many employees it had or what calibre they were then no investor worthy of the name would wish to buy their stock knowing they were heading for a train wreck. Yet a country that had no such policy is thought to be preferred? Illogical except to those few who may profit from same. Amusing that so many actually might think that they are part of that few. Delusional.

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Booger
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June 25, 2016 at 12:44 PM ×

Pol, you are probably right and that was what I had thought before the actual event (that it would be a sell after the event as well, in the event of Brexit and second order effects). Btw, you were spot on about the British voting intentions!

But now the Brexit vote has happened, I am tending to think the positioning toward short gbp.usd is way too crowded, to the extent of making it attractive to lean the other way. The spec short positioning is huge. I think there may be some further selling next week, but all it requires is some dithering and muttering that the Brexit result isn't binding by someone and I suspect we could rip the other way. I remember after the SNB surprise there was some jackknifing in CHF price for a few days before the gap started to get filled.

We only need to look at Greece from last year. They voted to get out of the Euro and never did. And the Euro filled the gap within a week. That was probably a more existential moment for the Euro, so I think there is a not insignificant chance that the euro retraces the gap next week, as unlikely as it seems currently. Having been on the wrong end of shorting the Euro at times in the last 2 years, it has more lives than a cat and the worst time to short it has been after wholesale liquidation due to event risk.

The other problem is being on the wrong side of being long dollars if risk aversion does not kick in, in the current environment of no Fed hikes in the foreseeable future. Perhaps Brexit causes a catastrophe but I doubt it will in the next 2 weeks, in which case I would actually be looking to go short dollars. I was thinking gbp.usd as a vehicle just due to the positioning currently, but the commodity currencies are looking attractive also. It would be for a quickie though, maybe 2 weeks.

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Anonymous
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June 25, 2016 at 4:30 PM ×

Long term impact of this vote on the UK economy is difficult to predict because there are so many moving parts.

In the next few weeks, I think the major risk is contagion. Suppose some big players lost big over the GBP bet, then it must liquidate their positions in a fire sale manner, as mentioned by several people here already. Or someone used their UK assets as collateral to finance other trades, then they will need to come up with the funds to cover the shortfall as well.

It would be essential next week. My bet is that there is going to be another wholesale liquidation for a falling knife to be attractive.

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abee crombie
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June 26, 2016 at 6:14 AM ×

I am leaning towards booger's view but keeping an open mind and watching closely.

what we had was a brexit vote at US/EU night time, no liquidity. FX went bananas and ppl piled on the same trades. Will the BoJ really stand by and be pushed around by Brexit? maybe if it is indeed a global contagion, but even then below 100 they can for sure stop out more than few late trend followers. Lets see

Everyone is worried about EU banks. No shit, they have been turds for a while. Guess what happens when bad news hits a turd. They sink a lot bc nobody wants to touch a turd. Not sure I would take too much out of them. But 20% moves, common thats a little insane, like MM said you have to go to 2008 to see double digit moves and even then it wasnt this bad. Hard to see banks crashing again, but hey thats why we play.

If I'm wrong US equities are not pricing a banking catastrophe in EU, thats for sure. Sell the weakest link. Transports and XLF. BUt if that happens you will have CB intervention. Just a question of timing.

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Anonymous
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June 26, 2016 at 9:10 AM ×

http://www.clickhole.com/article/feel-free-explain-your-take-brexit-picture-david-d-4568

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Bruce in Tennessee
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June 26, 2016 at 12:40 PM ×

http://www.bbc.com/news/uk-politics-eu-referendum-36626201

EU referendum: Moody's cut UK's credit outlook to 'negative'

...That didn't take long....

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Hotairmail
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June 26, 2016 at 2:07 PM ×

I have to say I guess I must be one of your 'brown shirt racists' as I voted Leave. Actually my perspective boiled down in the end to 2 simple issues.

1. The lack of a functioning 'demos'. The media have much to blame here. The BBC and others spend more time reporting on the anglophone USA elections.

2. Being shackled to the corpse of the Euro whilst remaining out of it, where we would be expected to pay for it whether it blows up or, they undertake permanent fiscal transfers via the EU framework. The Euro bloc need to make changes to make the Euro work and they will seek to tap our pockets in the process, out voting us. Being part of the Euro and having a more uplifting, hopeful vision of a unified Europe was not on the table. Indeed, I am also very upset at the treatment of Greece et al by the Bueaucracy using the Central Bank as its enforcer.

I think it very unfair that this has been characterised as a 'racist' versus open minded issue. Immigration is a catch all for a lot of issues not just straightforward racism - depressed wages, competition for jobs, pressure on housing and public services such as health services and schools. Many of the people who most feel this pressure are not the most articulate but it is unfair for the other half of society to despise them.

Perhaps the split in society is simply between those who will tend to work in their locality and those who are better off and better educated and are scared of losing their opportunities (which I doubt as it happens).

When I looked at the detailed research coming out every day, it seemed clear the odds were wrong. I had spotted a couple of 'glitches' in the data. Firstly, they were reporting results on whether people said they were going to vote...v. unreliable and they should have used prior experience to overlay. Secondly, there were a large % of particularly older voters who increasingly refused to say how they were going to vote. The disgraceful propaganda had literally driven these pepople's views underground, rendering the polls useless. I placed a decent sized bet on at about 4:1 but sadly lost my nerve as I was hoping the final polls would show some better news, but they just made a win for Remain look even more certain along with the markets. Basically, I didn't trust my thoughts over the market.

In market terms, I expect the recent volatility to blow over very quickly and that it is a reaction to the result simply presaging a messy break up of the Euro. But that is the next 'black swan' to look for. All the other political moves and company moves will take years and decades to work their way through.

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Hotairmail
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June 26, 2016 at 2:28 PM ×

On the legitimacy of the result that many seem to want to question, and re-run to get the answer they want: I would just like to point out that ALL REGIONS of the UK where nationalist issues did not take prominence, EXCEPT London, voted to Leave. The split in England and Wales was roughly 55% to 45% on a huge turnout. You can't get much more legitimate than that. Any politician questioning the result will be committing electoral suicide - hence why they've so far been quick to step up and say "we've just got to get on with it now".

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checkmate
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June 26, 2016 at 2:35 PM ×

The EU sent Cameron home cap in hand with nothing worth mentioning. Moreover even after that they made sure the message came through that the little promised was not binding. It could be overturned. Talk about fuelling mistrust.In this they created the polarisation we saw both in the vote and indeed the questions that were voted upon. It was stark ,in or out. No third option and yet a third option would have changed the outcome fairly dramatically I suspect. So much for EU flexibility. I don't know if this is blind arrogance on their part or just stupidity ,but they set this up for what we now face. They've obviously never taken onboard the old adage about not 'cornering a rat'.
What I found significant was the huge gulf between the voters wishes and the stance taken by the vast majority of MP's. This was without precedent and implies the political process isn't working because representation was not in evidence. If any of the proposals for trying to sidestep the outcome of this vote were to gain traction I would foresee a massive dislocation in British politics. It would confirm for many their current distrust of the major parties and I hate to say it, but it would probably lead to a huge swing to UKIP and Farage. UK politics would be in even more chaos than it currently is. I doubt any party would get a majority. It could literally be years of dysfunctional politics with General Elections becoming commonplace has Parliament fails.

I expect market volatility to continue throughout most of the years has a minimum. There may be consolidatory periods has cross currents of views nullify each other ,but overall the level of uncertainty is unlikely to diminish any time soon therefore those cross currents are almost certain to keep surging catching people badly positioned. Indeed, just has they were coming up to the referendum.

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Polemic
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June 26, 2016 at 2:38 PM ×

The UK is currently celebrating their love of 'Game of Thrones' with the whole country acting out the complete story.

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Hotairmail
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June 26, 2016 at 2:51 PM ×

It's a whole series packed into a one hour episode.

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checkmate
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June 26, 2016 at 3:13 PM ×

Speak for yourself. This little part of the UK is celebrating the bet I Placed for us to whitewash the Aussies. I'm in Rugby paradise. This feels better than winning the World Cup back in 2003.All the more so because of the vast respect I have for Aussie Rugby.

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northshore
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June 26, 2016 at 3:27 PM ×

@hotairmail 2:07 - amen.

I'm a bit baffled with esp conservative voting friends, knowing a referendum was promised, only now appreciating the risk of giving the country a binary vote - when so many others have been on the losing side of political and economic trends for a lifetime.

The once promising EU integration project preferred to let one its largest (admittedly reluctant) members leave, rather than start reforming the rights and opportunity of demography/globalisation's losers across Europe. Tragic but no longer surprising.

Why the old voted to leave and the young voted to stay; that I also don't really understand. Guess we each have our own notion of what progressive means.

Markets - clueless really, but expect the broader nirp journey continues.

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Anonymous
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June 26, 2016 at 7:31 PM ×

According to Exit Poll, Unidos Podemos+PSOE have absolute majority. #Spain #26J

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Anonymous
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June 26, 2016 at 8:02 PM ×

Zulauf along the lines of Soros:

"Rather, it was a political event, says Felix Zulauf, a longtime member of the Barron’s Roundtable. Brexit is not an isolated happening, the head of Zulauf Asset Management e-mailed from his offices in Zug, Switzerland. It is part of a swing against the political establishment. Indeed, “the disintegration process of the EU is beginning,” he contends.

This weekend will see elections in Spain—which Zulauf notes hasn’t had a government in two years—that could produce a coalition of socialist and antiestablishment parties. Brexit contagion could result in similar referendums on the Continent, with the Netherlands probably coming first, he adds.

In France, Marine Le Pen, head of the right-wing National Front party, called for the same vote there. Populist parties in Denmark, Sweden, and Italy also favor similar referendums. Indeed, the U.K.’s vote to leave the EU could lead to the breakup of the U.K. itself. A second referendum, on Scottish independence, could follow, while Sinn Fein is calling for a vote on the reunification of Ireland, leaving mainly “Little England” (along with “littler” Wales).

All of which suggests “political chaos and turmoil for several years,” Zulauf continues. The divorce of the U.K. from the EU will take at least two years. British Prime Minister David Cameron announced his intention to resign after the Brexit vote, leaving the task to his successor, who won’t be known until the Conservative Party picks a new leader at its convention next fall. And there’s the small matter of the U.S. elections in November.

But this is all much more negative for Europe than it is for Britain, writes Christopher Wood of CLSA in his Greed & Fear newsletter. The political tremors across the Continent will be much more destabilizing for countries in the euro zone. (The U.K., of course, retained the pound.)

“Greed & fear continues to believe the real risk to a euro-zone breakup remains Italy. Anyone who doubts this should understand that the Italian economy has growth less than the Japanese economy since the establishment of the euro. Thus, Italy’s real gross domestic product has risen only 5.4% since 1999, while Japan’s real GDP is up 14% over the same period,” Wood writes."

http://www.barrons.com/articles/brexit-is-it-the-beginning-of-the-end-for-the-eu-1466828659

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Anonymous
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June 26, 2016 at 8:06 PM × This comment has been removed by a blog administrator.
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Anonymous
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June 26, 2016 at 8:08 PM ×

Btw expect to see several EU banks go to the wall soon...

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Macro Man
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June 26, 2016 at 9:10 PM ×

@ Hotairmail Of course not everyone who voted Leave is a "brown shirt racist"...there are legitimate reasons to vote that way, even if I may not agree with them. But when someone comes onto my site calling anyone who agrees with Remain a "left-wing fuckwit", labels immigrants murders and rapists, and brags about erecting a guillotine...that's the label that fits, so I am using it.

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Anonymous
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June 26, 2016 at 9:30 PM ×

The BBC reported, as real, with no basic journalistic checks, an online petition for a 2nd referendum that appeared to be growing at a colossal rate. By 1:30 pm, it was one of the fastest-growing petitions in history. Turns out it was all a hoax...

Details at heatst dot com

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Anonymous
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June 26, 2016 at 10:04 PM ×

This brown shirt nonsense is going too far can I ask you why Jo Cox's constituents votes Brexit or why Rothrham or Rochdale or
Oldham or the feat of England apart from London?

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Macro Man
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June 26, 2016 at 10:11 PM ×

Because people are angry, and they need someone to blame, and the "elites" and the EU and the "foreigners" make fantastic targets. Coincidentally, many of these groups were also targets of populist movements 80 years ago.

As for the Brown Shirt label- when someone comes to my site spewing bile and apparently advocating violence or executions- well, Brown shirts is about the politest label I can apply to it.

What populists seems to forget is that it is always always always easier to point the finger than it is to arrive at concrete, workable, solutions. Just ask Syriza. Or Boris Johnson, for that matter.

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Anonymous
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June 26, 2016 at 10:35 PM ×

All your rants are aimed at anon 6.11 which isn't me but I jtresonded to your comments. CAn I ask you why the whole of England apart from the affluent South EAst is so angry? Google those areas above and I bet your lass is glad she isn't still there.

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Macro Man
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June 26, 2016 at 11:16 PM ×

I explained my views on the voting rationale just above. I am not going to apologize for my tone in responding to someone who comes to my site- and let's not forget, this is my site, I put in the work, I make the rules, and I expect guests to this site to adhere to those rules- ans spews hateful language and insults vast swathes of people, including me. As I noted much earlier in the thread, I am not interested in carrying on the debate over "rightness" or "wrongness" of each side, but rather to figure out what it means in practical terms. Anyone who would prefer to do the former should find another venue.

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Anonymous
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June 27, 2016 at 4:36 AM ×

Steven Major, who’s proven to be something of a savant as HSBC Holdings head of fixed-income research, says Brexit is ultimately little more than a sideshow. Long after the din from the U.K. vote subsides (and regardless of what happens in the U.S. presidential election), Major says issues that, at times, have been decades in the making will conspire to depress global growth and keep rates at rock-bottom levels for years to come.

“The real elephant in the room is not the U.K. vote or a Trump presidency,” Major said. “The real elephant in the room is we’ll have low and negative rates for a very long period of time.”

While the Brexit vote roiled financial markets and caused a surge in haven demand, Major says investors in the $100 trillion bond market need to look at deeper structural problems plaguing the world: demographics, the explosion of debt globally and the disparity in wealth between the rich and poor.

Regardless of where forecasters are now, Major says the likelihood of a U.S. recession over the next two years will probably push the consensus outlook lower. And even if the U.S. avoids that fate, the economy may stall enough so that it feels like a recession, especially for those left behind in the recovery. That’s likely to keep the Fed from raising rates further.

“It looks to me like everyone is going to end up converging on a similar view: the Fed can’t do much,” Major said. “I’m already there. It’s more of a structural story and the Fed for international and structural reasons can’t hike. Others will get there from their more cyclical approach.”

http://www.bloomberg.com/news/articles/2016-06-26/the-100-trillion-bond-market-s-got-bigger-concerns-than-brexit

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Anonymous
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June 27, 2016 at 5:07 AM ×

Marko Kolanovic, the JPMorgan Chase & Co. derivatives strategist:

"Britain’s departure will unleash as much as $300 billion of selling by automated quant programs in the already-battered U.S. stock market. Equity investors in the U.S. would be wise to stay away until quant managers finish the rebalancing that was forced on them by Friday’s volatility."

Is LB back in his hammock?

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checkmate
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June 27, 2016 at 5:52 AM ×

I find it strange that to vote out is defined has vote made in "anger". Strange because my discussions with others who also voted out finds none of us angry at all. We are certainly distrustful of establishment motivations ,but why would we not be given the events of recent years. Apparently , hardly anyone amongst the elected wanted to listen to us telling them that the quality of our daily lives was slowly but surely disintegrating before our eyes. Many of us asked much earlier that the we the UK be allowed to hit the pause button. That we be allowed to consolidate the changes brought about by massive immigration. Other than UKIP (sic) no one in politics was listening. Even last week the general view was still of such complacency that status quo and the ongoing relentless surge in population growth would remain in place.
It has not helped that the leave voters in small numbers have behaved on occasion has they have. That is counterbalanced by the rather shameful behaviour from numbers of remain voters. Can we just accept that the majority had legitimate concerns thought through and acted upon ?
From a practical viewpoint that means we understood this would cost us and we accept that situation that in the short term we will have to ride out the storm to get to the place in the longer term that we wished to be. Perhaps it behoves the more intelligent here to ask the question why the EU political would not take a more considered approach to allow that to happen. Was it the case that they have also forgotten who they are supposed to be representing?
My last post on this issue made to counterbalance all of the above.
I remain very market neutral at this stage and probably will do so for the months ahead waiting for market capitulation and overshoot in asset classes. Unlikely I think until seasonal dynamics also become optimally supportive. No attempt here at precise bottom picking.

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Anonymous
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June 27, 2016 at 8:47 AM ×

England never really wanted to be in europe anyway
england's european policy 101 here : https://www.youtube.com/watch?v=uXDWt_Yp9Nk

Seems odd to me that english blame europe for the consequences on their lifes of a neo-liberal agenda that europe is now trying to imposed to the continent but that England has proudly embraced since Tatcher...

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Adrem
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June 27, 2016 at 2:47 PM ×

MM. Your strictures on name-calling in argumentation are absolutely right. They pollute poltical discourse,any discourse. It has become a disease. Labelling is the hallmark of the politically correct. And who are the greatest purveyors of this? In America the so-called Liberal Progressive media (Salon classic with NYT not far behind) led by Obama whose rhetoric skills have been honed to a fine edge, setting up straw men to knock down,euphemism, Orwellian double speak, refusing to name radical islam. A Trump appears upon the scene and how is he daubed? Ignorant, bigot, racist, fascist, which by implication means all those who vote for him are also bigots, racist, ignorant..they cling to their guns and religion.

And then we get Brexit. What would have been the response of the Leave? Probably a shrug of resignation - guess we have got to live with it. What was the response of the Remain? Near hysteria. They went bezerk. Shrill name calling - ignorant, intolerant, ill-educated, immigrant haters, islamophobia. Calls for a second referendum. Petitions. How can we muzzle the result. Well, if this happens and this blind labelling doesn't stop politics in Britain will become very, very bitter. London is not England - period. Some people have got to change their preconceptions and it is not those out in the sticks.

Meanwhile, putting all this aside there is no better guide as to what might happen in markets and in political Europe than your pages.

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Anonymous
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June 27, 2016 at 7:31 PM ×

No more fooling around, brexit opened the Pandora's box of EU Superstate or nothing. Whatever the final resolution, it should now arrive significantly faster than it otherwise would've:

http://www.express.co.uk/news/politics/683739/EU-referendum-German-French-European-superstate-Brexit

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