I was out in my garden this afternoon trying to dodge the Showers (that never actually came but that’s another yarn for another day) and I was rolling Brexit thoughts around the WheelieBrain and thinking about how I need to handle things in the next couple of Weeks (or less). As I shoved my Sweetcorn Plants into the freshly Horse Pooed soil, the thought kept hitting me that Brexit looks a real possibility - and what does this mean for my Stocks and Strategy?
I don’t want this Blog to be a Political Rant or anything - quite frankly there is far too much of that around at the moment and I am sure Reader’s know my view (and how I Voted) and it is up to each and every one of us to make our own decisions about how we Vote. I will just tell you how I see things and it is up to you to do whatever you want - as of course you should always do - this is just my Personal Diary of my Trading - I am not making any Recommendations or anything.
Part of the reason for this Blog is to get down in Electrons form exactly what my Thoughts are - this helps me immensely and believe it or not I actually refer back to my own Strategy Blogs to remind myself of what I was thinking and planning at the time of writing.
I hadn’t intended to write this Blog - in fact, I was of the view that no more Blogs would come out until Saturday when I intend to look at the Charts and stuff as usual (it might get published on Sunday but I am out all day then so it will most likely be late on Saturday Night), but something significant has changed I think and I want to encapsulate it and get my thoughts in order.
Up until perhaps the last couple of Days, I was always of the view that ‘Remain’ would win and the UK would stay in the European Union (EU) but that the Vote would be very tight and very much dependent upon Turnout (as Younger People do not tend to Vote and they are more in the Remain Camp, but Older Folk will come out to Vote and they are very anti-EU on the whole), however, as I watch the News and Political Stuff and speak to Neighbours and look at Polls and Betting Odds and suchlike, it is clear that the ‘Leave’ Campaign really could Win. In fact, if you said you would take the Pint of Real Ale out of my hands now unless I gave you a definitive view on how I think the Vote will go, I would plump for ‘Brexit’. It is clear that momentum is going the way of Brexit.
Probably the biggest factor making me think this way is that all of the News programmes that talk to ‘Working Class Voters’ in what are traditionally Labour Heartlands are over-whelmingly saying they will vote to Leave. Not only this, John Mann MP, a very straight talking Labour MP appeared on Daily Politics today (you can catch it on BBC iPlayer) and said that Activists around the Country are telling him that every time they knock on a door, the Voter is telling them that they don’t agree with Labour’s “vote In” stance and will be voting Out. The key point here is that the ‘Remain’ Camp are very much dependent on getting the Labour vote out as it was assumed they would vote with the Party Line - however, that does not seem to be happening. John Mann even said that they are seeing a similar thing in Scotland !!
The strategy of the ‘Remain’ Campaign has really been around the Economic aspects and they have been utilising a ‘Fear’ strategy as they did with the Scottish Referendum and the General Election - the problem is that your Average Voter is just not listening and taking no notice. It is things like their local area and friends and family which are having more impact on how they vote - and overwhelmingly this is coming over as a dislike of Uncontrolled Immigration and a chance to kick what is widely perceived as an Elite that does not represent the Interests of the vast majority of the population.
Anyway, right or wrong, that is not the point - the Key Thing is that Brexit really could happen, and I need to capture what my Strategy will be in that Event.
The Brexit Plan
Forget the Politics, I’m frankly not interested - this is about what I will do with my Stocks.
If the UK does vote to Leave the EU, I think it will make no difference to the UK Economy for a long time. There has been an incredible amount of Fear Stories from the Government on this but personally I think it is nonsense. Just to back that up, Andrew Neil said on the Daily Politics today that the Treasury’s own ‘Central Forecast’ (i.e. the most likely scenario) was that UK GDP would fall by 0.4% - that is absolutely miniscule in the context of probably around 2.5% growth without Brexit (or similar figures, I am not going to look it up - you can if you want to) - in fact, it is very much a ‘Rounding Error’.
In addition, in the oft cited Treasury Document which talked about each UK Family losing £4300 of GDP (NOT INCOME) by 2030, what is getting omitted from the ‘Sound Bites’ is that the Scenario for 2030 if the UK does leave the EU is barely any different. In other words, the Treasury is saying that if UK leaves the EU, then by 2030 we will still be growing strongly but just not quite as strongly as if we stayed in the EU and then by only a tiny bit.
So it is all bollox frankly.
My view is that once Brexit is decided upon, our Government (whoever is leading at the time - it may not be Hammy Dave) will start ‘Negotiations’ with the EU bods and at some point they will initiate the 2 year Exit Period that is defined in the Treaties. In other words, it is an extremely long and drawn out process and until we actually do the ‘Brexit’ dirty deed, all of the existing EU/UK Treaties and Rules and stuff continue as they are - so Markets will just shake this off as yet more Macroeconomic babble. There will be some fuss for a few days, but give it a week and when you mention the Brexit down the ‘Dog and Wombat’ your mates will look at you with a vacant expression - the Man on the Street will have forgotten it all (especially if England are still in the Euro Footie thing).
On the basis that GDP will barely be affected (and if anything my personal view is that the UK will do much better freed of the EU Ball & Chain) I see any drop in the Markets resulting from Brexit after Thursday 23rd June 2016 (the day of the Vote) as A BUYING OPPORTUNITY.
On the day of writing this, Wednesday 15th June, the FTSE100 had a bit of a rise after 4 quite bad Down days. We are still about 6 Trading days away from the Vote (including the Thursday of the Vote) and I am thinking that we might see a little move up, possibly for a couple of days (but bear in mind that tomorrow, Thursday 16th is ‘Ex-Div‘ day which could put some downward pressure on), and then we will see further falls. If the Outcome of the Vote is going to be Brexit, then I hope we will fall a lot BEFORE the Thursday of the Vote - that will enable Brexit to get ‘priced in’ and I will be able to close down my remaining Short FTSE100 Positions as it is most likely we will Rally whatever the Result is.
If we are to get the kind of drop I desire before the Vote, I guess we need to see the Polls and Betting Odds head decisively towards Brexit winning in the next few days - this would probably cause a more orderly sell-off prior to the day of the Vote and enable me to close my Shorts nicely. It just makes things a lot harder if Brexit shocks the Markets.
The far harder Scenario is if the Markets stay buoyant (which suggests to me that they think ‘Remain’ is going to win) and then we get a Brexit which is a shock to everybody - I think this would cause a lot of Panic and Terror in the Markets and it would be extremely ugly - especially as it is a Friday and this always means crazy behaviour. In such a Scenario, I would not want to go into the Friday after the Vote with no Shorts to protect me - so it makes things really difficult because if I leave the Shorts on, but ‘Remain’ wins, then there will certainly be a huge Rally and I will never get these Damned Shorts taken off (they are really rather threadbare after all this time you know).
If we do get a ‘surprise Brexit’ and the Markets get battered; due to the reasons I outlined above about the Economy, I think this will be a Buying Opportunity and I will be buying once the Drop has calmed down. It will not be the ‘End of the World’ or WW3 or anything. Quality Stocks are Quality Stocks as far as I am concerned.
Maybe if this happens and the Markets hold up well next week, I might have to reduce my Shorts by half or something, just so the darned things have less of a drag on my Portfolio - the reality is that I will probably have plenty of opportunity to remove them later in the year around September/October time as things always get ropey then and we have Mr Donald Trumpy about to become US President.
In line with my view on Brexit being a Buying Opportunity, I won’t be going mad as the Summer is always difficult and I would rather buy heavily going into Winter, in addition to tearing my Shorts off, I want to do some selective Topups of Stocks I already hold in my Portfolio. I have not decided on a Definitive List yet, but I am pretty sure that I will buy more McCarthy & Stone MCS, Quantum Pharma QP., Avation AVAP, Telit TCM, Aviva AV., Galliford Try GFRD, Golden Prospect GPM - provided that the ‘Price is Right’ and I have the Cash available. Most likely I will not take on any extra Long Leverage via Spreadbets - I have plenty already.
A slight complication for me is that if I am unable to get the Shorts off before the Result of the Vote, then it will restrict the Cash I have available as I have a largish XUKS (FTSE100 Short ETF) Position in my ISA and ideally I would like to close that before the Vote and have the firepower for Buying.
Anyway, that’s where I am at the moment, no doubt I will be updating Readers in coming days with regard to my thinking and there may be some Tweets !!!
Good luck all, WD.
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