Heads I win, tails you lose!

Last month, I wrote the first of a three-part article on the Iranian Implementation.  Following on from it, here is Part 2, addressing the impending UK decision to stay in the EU: 

Brexit

I want to look at this from a Common Man Vs Market perspective. Watching the likes of Bloomberg and CNBC, one thing is clear: 

The Market does not have a clue as to which way the UK will vote and yet, Sterling seems to tank.

The rating agencies do not seem to fare any better either, beyond calling this a period of ‘sustained uncertainty’.  You don’t say!

I would therefore suggest that any average punter with little or no financial news, is better positioned to guess the outcome of Brexit. Call it Gut feel vs Informed choice.

 Why do I say this?

In 1970, a very interesting paper was published by George Akerlof, " the Market for Lemons and Peaches".  A lemon is an American slang term for a car that is found to be defective only after it has been bought (as always see Wikepedia).  

In my world the Daily Mail promotes the EU as the Lemon, whilst the FT calls it a Peach.  The Author does not exactly follow this methodology, but I think it helps to think along those lines.  Incidentally, in the FT's world, a Lemon is one which presents much more uncertainty than the Peach.  

The result is that this leaves a Binary choice for the common man, whilst the market contemplates 'sustained uncertainty'.  

The key factor though is that, the FT, Bloomberg and CNBC do not have a Vote. Well neither does the Daily Mail, but it impacts a lot more votes than all of them put together.

So here are the deceptively Binary Outcomes, which the Options market is unable to price:

Heads: UK Say Yes, we stay in:  We revert to status quo i.e. Today & Continue to pay ￡ 55 million every day, to the EU.  

That means the FT is right and the Daily mail wrong.  Except, people who read the FT & watch Bloomberg probably also read the Daily Mail, but this does not apply the other way around…

A huge generalization, I know, but we are seeing precisely this sentiment in the fish market. 

Tails: UK Says No, we leave the EU (& whatever that 'No' means): 

Sterling will probably Tank as the likes of Rabobank did not expect and more importantly ‘want’ this outcome.  

As the droves of Syrian Refugees continue to arrive in Germany, imagine the Headlines on the German equivalent of the Daily Mail on June 24, 2016? 

The reason why Merkel, gave Mr Cameron all that time is because the impact of the wider Euro Zone is a complete and utter disaster.  The best performing economy (barr Germany) is out.  

Hence, even more reason to buy Uncle Sam, whatever your position.

The Jersey View

The irony is that, me along with 100,000 other Residents of Jersey & the other little Island called Guernsey, will not be voting in the Brexit referendum on 23 June.   

I would therefore suggest that my views are entirely independent & pseudo academic.

But then again, if you wish to discuss hedging, I am your Man!