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BREXIT AND MARKETS — WHAT IT ALL MEANS: The rising chances of Brexit are causing severe strains in markets. The pound is falling, U.K. stocks are suffering, and investors are piling into government bonds because they are safe, driving their yields even lower or, in the case of German 10-year bunds, to negative for the first time ever. But what does it all mean? And what matters and what is just clutter? Here’s M.E.’s essential guide to the topic. (At least I hope it’s essential …)
Watch the margin rates: They’re an obscure element of financial markets, but they can be a canary in the coal mine of funding distress. Margin requirements — the amount of cash or securities an investor has to put up to trade with a counterparty — are a sign of confidence in financial markets. Increasing them, as some firms have done for pound trades, signals eroding confidence. On the flip side, they curtail trading, making it more difficult for investors to rack up big losses.
It’s the dislocation, not the trend, that causes panic and losses: As my old New York doctor used to promise when examining me: “No sudden movements.” Markets can’t promise that. What spooks them is a sudden break in a trend that catches investors by surprise and before you know it, becomes a vicious circle. Unfortunately, the referendum is one such “cliff event.” Markets will close on June 23 at one level; we will then learn the results. And markets will have to reopen on the following day, trying to adjust rapidly to the outcome. Risky stuff.
The policymakers’ roles: As we approach the June 23 vote, the Bank of England, the European Central Bank and, to a lesser extent, the U.K. government and the Commission will have two main roles. One is verbal: They need to soothe investors’ nerves and let them know they have their backs, especially if there’s an Out vote. The second role is practical: They have to keep their finger on the liquidity trigger, ready to flood markets with cheap cash, if needed. Liquidity is the lubricant of financial trading. Without it, markets (and eventually economies) grind to a halt. Just look at 2008 for a dramatic example. To its credit, the BoE has already said it’s ready to provide liquidity. And it looks like the ECB will participate in any action, judging by this Reuters story: Exclusive - ECB would pledge to backstop markets after a Brexit : sources | Reuters
Two scary quotes: One from Bill O’Neill, head of the chief investment office for the wealth management unit at UBS: “I don’t think the market is already priced for a Leave vote today.” Meaning: There will be more jarring market movements, and possibly some blood on the carpet on June 24, if Britain decides to leave the EU.
One from Strategas’ Jason DeSena Trennert: “If Britain decides to leave the EU, it would not be difficult to imagine a recession on the Continent.
So, you've said the economic argument is inconclusive on both sides, and haven't taken a position on immigration, but all your posts are heavily freighted toward leave. So what have you taken a position on?
My position is that the EU needs some serious reform and if it takes Brexit to make that happen then so be it.
Firstly, they are not EU citizens. Secondly, after Brexit, they'll be camped in Dover. So they'll soon find out what it's like.
What utter drivel you spout.
I'm afraid they won't get anywhere near Dover.
France has already indicated it is in the interests to maintain the current arrangements even in the event of Brexit.
And even if they didn't a simple passport check to prevent people boarding ferries or trains without proper accreditation would suffice.
Younger people probably don't remember this happening before the EU was formed.
I'm afraid they won't get anywhere near Dover.
France has already indicated it is in the interests to maintain the current arrangements even in the event of Brexit.
And even if they didn't a simple passport check to prevent people boarding ferries or trains without proper accreditation would suffice.
Younger people probably don't remember this happening before the EU was formed.
Start fining the ferry companies heavily and they will soon implement effective controls to prevent illegals getting on. Same for the trains.
All this talk of a few thousand immigrants camped at Calais is a complete non-sequitur. It takes zero account of all the other immigrants in the EU who don't bother going to Calais.
It would be a worse problem (for the Brits), if no-one wanted to immigrate. Why shouldn't some immigrants to the EU choose the UK?
All this talk of a few thousand immigrants camped at Calais is a complete non-sequitur. It takes zero account of all the other immigrants in the EU who don't bother going to Calais.
It would be a worse problem (for the Brits), if no-one wanted to immigrate. Why shouldn't some immigrants to the EU choose the UK?
Actually, the figures show that around 45% of legal immigrants to the UK are non-EU. So there are plenty of people wanting to immigrate to the UK.
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