Massive Brexit over reaction as turkeys vote for Christmas

Yesterday we watched on as the UK voted to leave the EC. That such a complex issue was put to a simple yes/no referendum vote by an arrogant P.M is a travesty. The best description I have seen is that all of those voting to leave were very much like turkeys voting for Christmas.

The financial markets expected that the status quo would hold and so given a surprise result opposite to the one they expected various markets have gone into freefall. The reality is that what drives markets is sentiment and the chance of anything substantial changing dramatically in the next two years is slim. The “leaving process” is a negotiated withdrawal takes around 2 years to complete.

Once the fuss dies down a bit stock prices will recover and businesses and governments will work out a more rational response to the vote.

Note: A few hours after I wrote this some FTSE markets are showing signs of recovery..


What I find the most striking is that for all out apparent faith “in the markets” how useless they are in an age of amplified media where negative biases transmit seemingly well and rational analysis – not so much.

It is part of the same reason that people in the U.S are voting for Trump. What an idiotic thing to do and hopefully the actual brexit vote might even have a sobering effect on international politics. I hope so. According to this analysis education level was a predictor of voting behaviour.

I do think that voting behaviour in the Western democracies does seem to have changed irrevocably and this Brexit result underlines that when faced with a complex decision the majority are shown to be incredibly short sighted at the very least.

Headlines this morning have trumpeted losses of between 2 and 3 trillion. A fair amount of that is going to be unrealised and while there will be real losses for some I’m picking that the level of potential actual losses will be much smaller.

Rafael Behr wrote this while the results were still unknown that Brexit earthquake has happened, and the rubble will take years to clear. What is telling for me from his column is this section.

“Although the vote has to be interpreted as an instruction to withdraw from the EU, it sounded in the early hours of Friday more like a howl of rage and frustration by one half of the country against the system of power, wealth and privilege perceived to be controlled by an elite residing, well, elsewhere. Westminster was the target as much as Brussels. But even that account doesn’t quite do justice to the complexity of what unfolded, or rather, what crumbled.”


Many clearly thought, too, that, somewhere in the process, there might be a change in the national complexion: that in the great reallocation of resource and opportunity over the Brexit rainbow, once the country has been “taken back”, there will be more to go around for what Ukip supporters, in their less guarded moments, call “indigenous” workers – the ones who were left behind in the headlong march into a globalised labour market.”

There will of course be much more analysis over the next few days and beyond. I would think that the UK as a trading nation will want to have equivalent trading agreements in place with many nations as soon as they are allowed to. The UK will be wanting to preserve the benefits of EC membership as much as possible while mitigating against various demands and costs they didn’t like.

How To Make Sense Of The Brexit Turmoil By Ben Casselman is a good analysis of some of the complexities of a process that will take a long time to complete. Casselman writes:

“Expect more surprises: Here is an incomplete list of things that could happen in the wake of Thursday’s vote: Boris Johnson (the wild-haired former mayor of London who is often described as the U.K.’s Donald Trump) could become prime minister of Britain. The Netherlands could leave the EU. Scotland could leave the U.K. Northern Ireland could rejoin Ireland. The EU could break up entirely.”

The unintended consequences* of the “leave” vote will be many and like Behr writes above the metaphor of an earthquake is entirely appropriate. It is going to be a tangled mess for some time and the UK will go through some version of the 5 stages of grief until they come up with a new plan.

However as Behr suggests there has been a fundamental shift in the way that political parties can no longer rely mass messaging when there is a complete class disconnect with the leadership of a country and the masses.

What is even more surprising to me is that so far no real mention of scenario planning from industry leaders. The vote was always expected to be close and so financial markets and others should have been planning a range of scenarios already and I’m sure they have. Bank of England tries to calm markets as pound and shares plummet and others will be doing their best to stabilise financial markets which have already rebounded somewhat as this graph shows.


It’s just that we are still in the denial and anger stages of the process as markets and media struggle to make sense of a surprise result. Exactly what you’d expect when turkeys vote for Christmas.

* Unintended consequences include other nations deciding to leave the EU. This is something that the EU will use to speed up the exit process for the U.K.

Also those people in UK & Europe worried about immigration / refugees should put pressure on their banks to stop funding weapons in the Middle East. JP Morgan and Bank of America in cluster bomb investors ‘Hall of Shame’ – Report finds 158 financial institutions in 14 countries invested $28bn to fund cluster bombs

OK it is more complicated than that but the reality is some businesses are profiting from unrest in Syria and there seems to be no political resolution in sight.

Update: 26/6/16 Now that the dust is settling a bit it seems like the “leave” vote has been a massive protest vote against the current elites and despite this creating massive problems even areas that benefitted from EU funding voted against that to make a point.

Yves Smith has written a long post Brexit: Pulling the Signal Out of the Noise that is very worthwhile reading. He closes with a warning.

“Luce isn’t advocating a Sanders-style economic regime change. Indeed, his call for action is making a case for reform, implying that the more realistic members of the elites need to take on the reactionary forces. As we’ve said, the Clintons are modern day Bourbons: they’ve learned nothing and forgotten nothing. Luce’s warning to Hillary Clinton, firmly ensconced in her bubble of self-regard, deeply loyal to powerful, monied interests and technocrats, is destined to fall on deaf ears.”

Included in that is an analysis by Mark Blyth see below.

Update: 26/6/16 This just in > – A Brexit conspiracy theory nails the no-win situation Boris Johnson now finds himself in

Buried away in there is a paragraph about the poisoned chalice that the party leadership now have waiting for them. With Cameron’s resignation he has got himself off the hook but Boris Johnson and whoever takes over as P.M are in a very awkward situation to say the least.

The referendum result is not binding. It is advisory. Parliament is not bound to commit itself in that same direction.

The Conservative party election that Cameron triggered will now have one question looming over it: will you, if elected as party leader, trigger the notice under Article 50?
Who will want to have the responsibility of all those ramifications and consequences on his/her head and shoulders?”

Update: 27 June – Jeffrey Sachs writes in The Meaning of Brexit
Sachs points to the geo-political causes of the refugee crisis which results from massive bungling by the U.S and others in the Middle East. I noted that the U.S & the UK military businesses benefit from all of that misery but Sachs is very direct in saying to fix Brexit they should.

“First, stop the refugee surge by ending the Syrian war immediately. This can be accomplished by ending the CIA-Saudi alliance to overthrow Bashar al-Assad, thereby enabling Assad (with Russian and Iranian backing) to defeat the Islamic State and stabilize Syria (with a similar approach in neighboring Iraq). America’s addiction to regime change (in Afghanistan, Iraq, Libya, and Syria) is the deep cause of Europe’s refugee crisis. End the addiction, and the recent refugees could return home.

Second, stop NATO’s expansion to Ukraine and Georgia. The new Cold War with Russia is another US-contrived blunder with plenty of European naiveté attached. Closing the door on NATO expansion would make it possible to ease tensions and normalize relations with Russia, stabilize Ukraine, and restore focus on the European economy and the European project.”

I doubt any of that is easy but certainly after years of war in Syria it is time to try something else.