econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 22 June 2016

Brexit: Buy The Rumor, Sell The Fact

by Keith Fitz-Gerald, Money Morning

Money Morning Article of the Week

The now-legendary George Soros made his mark on history by "breaking" the Bank of England and walking away with a cool $1.5 billion dollars as a hard-nosed hedge fund trader back in September 1992.

He did it by shorting the sterling pound in a move that ultimately cost the UK treasury more than £3.4 billion and threw global markets into complete chaos. But that's nothing compared to the situation this time around and the opportunity we have on our hands.

This time, the Bank of England is about to break itself.

Here's how to position your money to take advantage of the situation.

There's Always Profit Potential in Chaos of this Caliber

Chances are good you've heard the term "Brexit" by now.

Brexit is shorthand for a referendum slated for Thursday, June 23, that will decide whether Britain will stay in the EU or make an unceremonious exit - hence the term - Britain + Exit = Brexit.

Those who favor staying argue that doing so gives Britain a big advantage when it comes to things like economic growth and public services, which are paid for largely by trade and export. Those who want to leave argue that the EU has too much control over Britain and that the billions paid each year to secure membership could be better spent at home. The "free movement" of migrants overwhelming the country currently and lack of visas has become a central rally point.

What it really comes down to, though, is something far simpler - whether continued membership at a time when Europe is changing rapidly ensures prosperity or condemns Britain to economic devastation.

With only 8 days to go until the referendum that decides whether or not Britain leaves the EU, the polls have swung in favor of those who want to leave (43%) versus those who want to stay (42%).

Those with plenty to defend - meaning the status quo - have gone bananas, and the headlines reflect the increasingly stark divide.

"Cam's Great EU Gamble" - Daily Mirror

"Brexit Will Raise Risk of World War" - The Times

"Brexit Would Put a Bomb Under Our Economy" - USA Today

They embody the Total Wealth Principle of Divisiveness that we talked about last week, and that means there's a terrific opportunity at hand.

But it's not on the front page like everybody thinks. To really strike it big, you've got to look at what's on the back page because that's the information that can make you a millionaire.

brexit

The "back pages" are where you'll find charts like this one.

The critical takeaway here is not the emotional baggage associated with staying, nor with a departure like most people think.

What you need to key in on is that volatility is rising dramatically as the vote draws near.

What this chart is really telling you is that those who have a vested interest in things staying the way they are may actually lose the battle. Put another way, the push to leave is so strong that billions of dollars have already been spent on the assumption that it will happen.

That's your entry.

Now, take what you know and play that out logically to find your trade.

If Britain stays, the pound remains relatively consistent because things don't change much. It'll be more of the same... politics... immigration... economic doldrums. Volatility drops.

If Britain leaves, the pound drops because people are worried about British isolation and all that comes with it. Volatility skyrockets. And, as is the case so often when the stuff hits the proverbial fan, the dollar rises because it's the only currency liquid enough to absorb the risk as traders run for the hills.

Even Janet Yellen can't sugarcoat the possibility. During her speech earlier this week, the U.S. Federal Reserve chair told listeners:

"...a UK vote to exit the European Union could have significant economic repercussions."

...no kidding. That's Fedspeak for "buckle up."

As I write this, the pound is sitting nearly 20% lower than its 2014 highs, and the lowest it's been in three weeks.

Should the June 23 referendum lead to Britain's split from the EU, experts (including the head of the Bank of England) are calling for a further 10%, or possibly 15%, drop in the pound.

I think 20% is more likely because leaving the EU is a much bigger deal financially than most people realize, and volatility reflects that even though the headlines don't... yet.

Two Easy Ways to Play the "Brexit"

The most defensive "offensive" position is to go long the U.S. dollar with an exchange-traded fund (ETF) like the PowerShares U.S. Dollar Bullish Fund (NYSE Arca: UUP). That way you'll benefit from global traders who seek the relative safety of the dollar should Britain head off on its own even if the pound doesn't move all that much itself.

The U.S. dollar has the added benefit of being the go-to for other currencies that will weaken at the same time, so it's really the choice to play a knee-jerk reaction that will be global in nature, even though it's Britain that we're focused on today.

If you want more direct exposure to the British pound, consider buying the Short GBP Long USD (LON: SGBP). It's traded on the London Exchange, so you'll need to check with your broker for access. This way you'll benefit from a potential breakdown in the pound itself specifically as it trades against the U.S. dollar.

More advanced traders and investors could also consider everything from options to futures, but those are beyond the scope of today's article, so we'll cover 'em another time.

As always, both of these trades are speculative in nature, so you'll want to keep risk small by limiting the capital you place at work.

While that varies by investor risk tolerance and objectives, a good rule of thumb is to limit a speculative trade like this one to 2% of overall capital because doing so gives you plenty of staying power.

Never forget that opportunities like this one are not a matter of if or even when...

...but how.


Editor's Note: Getting ahead of a whole nation's currency woes can be extremely profitable, as Keith has shown his readers time and again. But there's a "rumor" that several widely respected research firms have already picked up on and published in reports. The $95 million sector that's forecast to grow to $17 billion won't stay a secret much longer - and Keith tells Total Wealth members how to get ahead of this "Unstoppable Trend" in his free special report. To access the full report, including ticker symbol for the company set to conquer the rise of human augmentation, sign up for Total Wealth here - it's free!

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Investing Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Investing


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Expected Effects of Petitions to Improve the Monetary System
Energy and Falling Productivity
News Blog
Early Headlines: Asia Stocks Mixed, Europa Water Plumes, All About The Debate, Putin Reacts To Debate, Oblivious Students, India Rocket Success, China Profits Surge And More
September 26, 2016 Weather and Climate Report - Not Quite the Camino Real
The Dominant Forces In The U.S. Gun Market
69 Percent Of Americans Have Less Than One Thousand Dollars In Savings
Average Gasoline Prices for Week Ending 26 September 2016 Unchanged
Genetic Studies Reveal Diversity Of Early Human Populations - And Pin Down When We Left Africa
Earnings And Economic Reports: Week Starting 26 September 2016
TV Matches Aren't All That Important And Trump's Less Trusted
What We Read Today 26 September 2016
Why Mosquitoes Bite Some People
September 2016 Texas Manufacturing Survey Improves Further Into Expansion.
August 2016 New Home Sales Decline On Lower Median Sales Prices.
U.S. Real Wage Growth: Fast Out Of The Starting Blocks - Part 1 Of 2
Investing Blog
Monday Morning Call 26 September
We're Back Here We Started
Opinion Blog
Housing Inflation- A Simple Case Of Supply And Demand Exacerbated By Low Rates
Heading For A Fall? With Summer Over, Europe Must Face Up To Its Mounting Crises
Precious Metals Blog
War On Cash Turns To $20, $50, And $100 Bills
Live Markets
26Sep2016 Market Close: Wall Street Remained Down Ahead Of Tonight's Presidential Debate And OPEC's Meeting Later This Week, WTI Crude Falls Back To The 45 Handle, Gold Also Falls Off Session Highs
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved