BREXIT – Tonight’s The Night!

The polls have it neck and neck, though overnight many have Brexit just ahead of Bremain.  The bookies are a different story where the stay camp is comfortably in front.  This split dynamic is itself perhaps an insight into the bigger picture.  Bookie’s odds are set by the quantum of bets placed – it’s the dollar equivalent of a poll.  The more money placed on an outcome the more that shortens the odds.  Those with the most to lose from the UK leaving the Euro are those with the most money – the so called 1%’ers.  One of the biggest bookies, Ladbrokes, has revealed they are seeing a larger number of bets for a leave, but the remains are larger (6x !) dollar amounts placed over fewer bets.  Indeed after the shooting of MP Jo Cox they took a $50,000 bet that moved the odds immediately before a wave of similar sentiment both in betting and financial markets ensued.

We write often of the enriching of the rich at the expense of the middle class and poor, courtesy of the unprecedented monetary stimulus unleashed by the world’s central banks.  Until recently that stimulus has done nothing more than inflate financial markets that most people have only a modest-to-nil exposure to.

The graph below is instructive on a couple of fronts.  First it shows that things are getting a little desperate from the ECB (the Euro’s central bank) as they ramp up monetary stimulus through quantitative easing (money printing) as markets are falling regardless.  The ECB’s balance sheet (indicating the amount of debt instruments (bonds etc) it has bought with printed money) is now higher than the 2012 Euro crisis.  The 1%’ers need this stimulus to re-inflate their share portfolio.  The masses are dealing with negative interest rates (i.e. savings return nil and may soon cost to keep in the bank), bureaucracy, and a general feeling of loss of control.

This is not just a UK phenomenon either.  Reuters just reported that the French voted just 38% in favour of the EU project and the polls indicate the NFP leader (who has promised taking France to an EU referendum) will lead the 2017 elections.  Next week Spain votes and it is looking like the current ruling party will be ousted by the socialist coalition including an anti EU agenda.  

So whilst the Remain camp are touting financial Armageddon for the UK should she leave, the much bigger question remains of how long the EU project can stick together regardless.  Many believe a project of this scale that whilst sharing a common currency, will never work with different cultures, debt burdens, and ‘skin in the game’.  

No doubt gold might take a bit of a hit should the remain camp win, but the jump that will almost certainly happen on a leave win, is most likely just a bring forward of what still is looking more and more certain.