A couple of hours before the Brexit polls closed the odds against the leave vote winning was 14/1 against. Bet $1000 and win $14000. The betting markets were showing 93% certainty for ‘Stay’ four houers before polling closed. That is how sure everyone was of a ‘Remain’ vote.
When the results started to come in the odds collapsed but even in the small hours of the night as ‘leave’ results rolled in, you could still get 2/1 against a ‘leave’ vote.
All the while the futures market was showing the FTSE index down 5%. The pound dollar seesawed through the night, sometimes 6 or 6c down sometimes only 2c down.
Then the realization set in as the ‘leave vote pull 200,000 votes ahead, the ‘leave’ was going to happen and the pound collapsed to 11c down and markets around the world slumped.
So the unexpected happened, the UK has voted to ‘leave’ the EU.
Chaos will ensue.
The Market opened 8.7% down with the banks and house builders hurt the most. One construction company Redrow that closed at 426p, opened at 100p. After the initial panic it bounced back to 360p. That’s is how much panic was about in the first minutes of the open.
Yet as I write the market has come back 250 points from the low and is about 4.5% down which is far from the slump that could have happened.
Europe has faired worse with the French market falling 10%, the German market 10% and the Greek market down 12%.
Once the dust settled the pound dropped 8% against the dollar and 5% against the Euro.
Overall the falls are a lot less terrible than might have been expected. Today is no black Friday, or at least yet.
The Dow is set to open 500 points down so its not over yet as far as the market is concerned and we do not know if the regulators are supporting the market and keeping the whole marketplace from imploding.
The real extend of the Brexit ‘disaster’ will play out in the next two weeks when people get over the excitement and hype and start to get their heads around the consequences. It feels to me there are more drastic problems to come but it seems impossible to predict. There are too many of the infamous ‘unknown’ ‘unknowns’ and that isn’t generally a good place for the stock markets of Europe to be in.
What is important is the British Prime minister, David Cameron, has resigned and is making way for a new Prime minister in the coming weeks. This is key to allowing a ‘leave’ vote to be a real ‘leave’ from the EU which needs a parliamentary vote for it to be carried into action. The referendum is advisory so isn’t binding on parliament and a bill will need to be passed by a parliament in which the majority were and probably still are for ‘Remain.’ The new Prime Minister will have to drive that bill through parliament or it will be killed and that would be extremely dangerous. If parliament bins the referendum vote, like the Dutch did this year and Greeks did with their default referendum, then catastrophe would be piled on disaster. The UK voters would not stand for that.
The Brexit maneuver will take 10 years to play out. The UK will suffer gritty economic consequences for years, followed by a period of recovery but at the end of it all the UK will be very different from what it would have been if it had stayed in the US. Brexit will be a revolutionary process and for many, the costs will be hard to bear but the resultant flowering after the economic chaos may prove worth it.
A lot of people will soon be ruing the day they and the UK voted to leave, but then many I have spoken to already are prepared to suffer the bumpy road ahead in order that the United Kingdom doesn’t get absorbed into a greater Europe.