Brexit Means Brexit But Also Hair-Pulling, Hand-Wringing, Wingeing Among Traders

Nothing makes sense anymore, including the British economy.
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By Rlevente [CC BY-SA 4.0], via Wikimedia Commons

By Rlevente [CC BY-SA 4.0], via Wikimedia Commons

We’ve had a bit of fun with British Prime Minister Theresa May’s oft-repeated catchphrase “Brexit means Brexit.” It’s funny, of course, because no one knows what it means: Not the people who voted for it. Not the people who urged them to vote for it. Not the person in charge of making it happen. No one.

This, of course, is a problem, one which the British and their jilted European partners will be unwinding for at least another year-and-a-half and probably for much, much longer indeed. But it’s also a problem for traders. You see, lots of them thought they knew what Brexit would mean, and that was: Economic catastrophe north of the English Channel. A currency with about as much intrinsic value as a bitcoin. Shares of companies selling things to newly-impoverished Britons cratering. One of the hottest housing markets in the world going ice cold. These have proven costly mistakes.

Now, more than a year later few, if any, of these consensus trades suggested by analysts and fund managers to profit from Brexit turmoil have made any money. Short-term speculators who managed to time their entry and exit have profited, but investors who have stuck with them, taking a longer term view on Brexit’s impact on the British economy, have been left nursing painful losses….

Currency traders have been undone by numerous twists and turns since the vote: an economy that proved more resilient than predicted, Theresa May’s hard Brexit stance at last year’s Conservative party conference, the snap election call, its unexpected outcome, the Bank of England turning hawkish despite sluggish data, and unforeseen dollar weakness and euro strength….

Many strategists last year made the argument that the mid-cap FTSE 250 index contained far more companies reliant on the UK economy for sales, meaning that this index offered up the best chance to express a bearish view on Britain. In fact, the FTSE 250 has actually risen 13 per cent since the vote.

Of course, many computers and some humans realized that all of the bad things to come for the U.K. would not come all at once, or that things like the terminal decline the value of the pound might be preempted by American voters making an arguably much bigger mistake and electing a president an unstable clown, one of whose only consistent positions has been to drive down the value of the dollar. There is only one certainty about Brexit: It’s a fool’s errand trying to figure out what it means.

The pound, the BoE and the economy are all in “a sort of limbo” until the ramifications of Brexit are clearer, Mr Lambert says. “Until you start to see the economy tipping in one direction or other, investors can stay in limbo for longer.”

Brexit trades not as simple as they looked [FT]

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