Brexit Volatility

And so it’s arrived. The Brexit referendum. Governments of course won’t consider referenda unless coerced, and then of course they’ll want to see the desired, or what they would call the ‘correct’, result; otherwise they wouldn’t have them. There was a joke in Sweden to the contrary. They had a referendum in 1955 about whether to change from driving on the left, as we do in Britain, or to switch to the same side as the continent. For Sweden, like the UK, the continent is also broadly unattached. They were more or less an island nation in terms of what we call Continental Europe. Over 80% voted against switching and the turnout was over 50%. And that’s the point, because in 1967 the Riksdag approved the change to driving on the right. So the joke is that you vote for what you don’t want.

Here things are a little different. We tend to vote to keep the status quo. Is it because we were once bitten by the tragically miserable and Puritanical Commonwealth after we chopped off Charles I’s smug head? Or did the centuries of to-ing and fro-ing of religions made us weary for some sort of continuity?

A friend of mine from Belarus said he loves change. After all, things can only improve with change. I subscribe to that point of view. But most Brits don’t. Even the Scots turned down independence in favour of trusting an untrustworthy Westminster. What numpties! At least we now know that, given only 44.7% voted yes, 44.7% of Scotsmen have something under their kilt, unlike the rest of them. If you ask anyone in the UK if First Past the Post is a suitable way to elect our representatives they would almost all say no and that there’s a better way. And yet when faced with a referendum on the issue, there was little public interest, even less public debate, and a vote to keep the status quo. We have, as my Final Word piece in February’s Master Investor Magazine discussed, become pathetic.

The good news is that whether or not we vote to stay in the EU, and I’d say that’s the default position, we’re going to see market volatility. If it starts to look like any other result than staying in, you can watch the celebs popping their heads out all over the shop and politicians feeding us lies, as politicians do, in order to keep the referendum on the ‘right’ track. This would be the ideal scenario for trading opportunities.

The good news for us as traders is that with the date set for 23^rd June ’16, we now have four months to make hay. Markets become more volatile in the face of uncertainty. Forget the US as they don’t really export that much, and are just sabre rattling when they say there’ll be no special trade deal for the independent UK. But the UK indices, useless as I would rate them most of the time, especially the four-letter word F*** 100, will be up and down like something that goes up and down a lot quite quickly.

Of course risk will increase too, but that can be taken into account in trade management and strategy. Expect the price to start colouring outside the edges as it were: going through support and resistance but still failing soon after. The whole thing should just become more wobbly overall. It’s not the sort of trading I like to do – give me predictability every time – but opportunities like this can’t be ignored.

Volatility is a market byword for redistribution of wealth. Make sure you’re in receipt if you’re getting involved at all.