The Lemon Fool

Whether the UK does or does not leave the EU, there ought to be investment opportunities, but what are they.

There have been opportunities to short Sterling against the Euro which have worked well, but what else?

Low Sterling ought to increase the profits of UK exporters & hurt the profits of importers, but what have been the best ways to play this?

There are now likely three possibilities:

1) The May document is voted through & we leave in March.

2) The May document is rejected by parliament & a hard Brexit happens

3) Parliament rejects the May documents & new negotiations happen, with or with out a change of leadership and/or a new election.

I am looking for relatively easy plays if there are any & so would be interested in others comments.

From my own perspective it seems the uncertainties are so large that cash is the best option, but I am willing to be convinced otherwise.

One of my contacts is a strong Bremainer & convinced me to watch this Stephen Fry video, which he believes makes such sense that now is the time to get as much Sterling as possible as he believes the leave decision will be reversed:

https://youtu.be/UYonSZ8s3_o

I have nothing against Stephen Fry, but I found this video just another polarised example among many that it made no impact on me as like so many others it does nothing but speak to folk who already have a fixed opinion.

To my mind there should be good opportunities, but perhaps the uncertainties are so high that there are currently none worth investing upon.

I kind of think that the macro themes that have been running for the last few years: replacing of hydro carbon propulsion with electric traction, AI, robotics & similar which are all dominated by US corporations are so strong that what ever happens with Brexit, these will be powerful investment themes going forwards. Am I wrong, if so why & what should I be looking at?

Regards,

Mervyn King believes that Brexit will make very little economic difference, that it is a political event, nothing like the banking crisis in risk:

https://youtu.be/0D7qNviNKCI

I'm a Brexiteer, have been opposed to the EU ever since it was formed, but I expect (and invest on this expectation) that there will either be a deal that is Brexit in name only or that we won't leave the EU. It's important for people to differentiate between what they want to happen and what they expect to happen.

An easy play on this scenario is the Central London commercial property specialists, in particular Great Portland Estates, Shaftesbury and Derwent London. Their share prices were very badly hit when trading resulted after the result was known but have recovered somewhat. For example, I bought Great Portland at just over 500p on the Friday after the vote when the price had been hammered; they're up almost 39% since then (the FTSE 100 is up 13.6% over the same period).

Their portfolios are much higher quality than the likes of Land Securities because most are in central London (the region enclosed by the circle line, notably the West End). Their discounts to NAV have widened substantially since the vote and Shaftesbury has lost its premium. And the Crossrail project, when it eventually gets finished, will provide a substantial boost to central London (I don't think that much of this is in the price because of the negativity surrounding Brexit).

I also believe that a so called hard Brexit will not be anything like as bad as the consensus forecasts. Macroeconomic forecasting is not a science; the consensus forecast as to what happens immediately after the vote (recession, market crash, mass unemployment) was horribly wrong, as it was for leaving the ERM and not joining the Euro.

These forecasters don't have much of what Nassim Taleb calls "Skin in the Game"; they don't get fired or lose money for making a major cockup, in contrast to investors like me who put our own money at risk. There's an excellent discussion on EconTalk with Taleb about Skin in the Game.

http://www.econtalk.org/taleb-on-skin-in-the-game/

Hard or soft Brexit?

Who cares, buy dollars or euros as the pound will be smashed. It worked for me when the vote was announced in 2016, and will work again when TM is defeated in a week or two, as the world's verdict on our political class is announced...

Gold could be excellent, with possible dollar rises enhanced by sterling weakness.

I'm basically working on the premise that UK equities are under-priced and that at some point when whatever Brexit outcome/solution is arrived at, they will bounce up in price. I am sitting on both FTSE 100 and mid cap stocks and IT's with this hope in mind!

Re the £, I always work on the assumption that it will remain under pressure.

The other thing to keep half an eye on is the Italian sovereign debt held by Italian, German and French banks.
They keep stamping on the fuse, but it keeps sputtering back into life.
Big kaboom some time. Euro will take a nose dive......

Emerging markets may not be a dangerous as they sometimes seem.......

odysseus2000 wrote:Mervyn King believes that Brexit will make very little economic difference, that it is a political event, nothing like the banking crisis in risk:

https://youtu.be/0D7qNviNKCI

I think Mervyn King is correct economically however this does not represent how the stock market will react short term.

The stock market can act emotionally rather than objectively at times e.g. the first few hours after Leave won the referendum, then reality took over and there were massive corrective moves.

I can see this emotional response happening again in the near future, however unlike the referendum having a fixed date, I don't know what the trigger will be. That's because there is currently a combination of false hope spread by remainers and a lack of understanding of how the UK's legislation works. It is this realisation that will provide the opportunity here. I'm unsure if I will participate in the emotional downward move as that is a market timing thing for when this realisation occurs, however this emotional move should be easy to recognise probably via the media and thus will provide a great opportunity to participate in the corrective reality move.

richfool wrote:I'm basically working on the premise that UK equities are under-priced and that at some point when whatever Brexit outcome/solution is arrived at, they will bounce up in price. I am sitting on both FTSE 100 and mid cap stocks and IT's with this hope in mind!

I tend to agree with this. No deal would result is some economic destruction and you would need to keep any eye on stocks that face that risk. However, the certainty of some form of deal (even May's) would result in positive movements.

As we now have no clarity as far as I can tell on Brexit, it is interesting to look at what has happened to some of the suggestions:

Ftse:

https://www.google.com/search?client=sa ... 8&oe=UTF-8

May need to select 5 years to see, but this seems to be chugging along as suits itself, the big Christmas Eve sell off happened and it has now recovered, no obvious sensitivity to Brexit

Gold:

https://twitter.com/0_ody/status/1113555354258956294

If you bought at the low after Brexit and held through lower lows, you have done ok, not great.

£ v $:

https://twitter.com/0_ody/status/1113555947924938755

£ close to where it was after Brexit, after big sell off early 2019

Great Portland:

https://twitter.com/0_ody/status/1113555580642373634

This has continued to do well although volatile.

As far as I can tell Great Portland has done the best but you had to buy soon after Brexit to get the most benefit and it has been volatile.

In general the markets don’t seem to care much about Brexit, unless I am missing something that is agreeable correlating with what ever the politicians decide.

The positive of a decoupling between the politics and the financial markets may continue. Many media types are talking about a political crisis like the 1970’s but most folk are seeing no change in their circumstances and if the current removal of “no deal” holds one might expects no financial consequences.

However, there are a lot of very unhappy voters and if we start to see civil disobedience, or UKIP surge in the polls, beginning e.g. in the Newport by-election tomorrow, there could be some turbulance. Doesn’t seem that likely, but I have never seen more folk more angry than now.


If however, the Brexit thing is destroyed and the UK is tied into the EU by treaty and goes along with the idea to build a European military there may be opportunity in British Aerospace which has been heavily sold:

https://twitter.com/0_ody/status/1113561300146302977

All in all I don’t like anything about the current situation. It looks like a recipe for endless wrangling with the possibility that something very stupid will be agreed to and/or some big change in the UK political scene that may not be ignored by the market.

This is an amusing take on the current state as a Hitler bunker rant (warning strong adult language):

https://www.youtube.com/watch?v=J-1gWw0beww

As I now see things the UK will be locked into the slow growing European economies, with a population and political system so split that it makes investments here very uncertain especially as China continues to grow and will imho likely hurt the German economy by making better stuff for less.

There will likely be the perennial opportunities for value investments and for day trading, but for growth it seems to me that the US and China are much better with $ being perhaps more likely to hold its value than Chinese currency and anyhow the two economies are linked. Apple for example saying they could make stuff for less out of China, but that China has well trained people that makes it a much better place. Tesla too have seemingly come to the same conclusion building gigafactory 2 there.

Always interested in other views.

Regards,

Tesla plan to build the next factory (auto & battery combined) in EU, using the China one as a template. Rumour mill suggests Germany and Poland are front runner candidates. The UK was never a contender once it announced Brexit.

- dspp

I remain heavily invested in UK FTSE 250 equities whatever the outcome of Brexit. My thinking is that most of these companies have diversified activities round the world. Should trade barriers arise between the UK and the EU, these companies will shift, as necessary, resource (capital and manpower) to within the EU to retain trade. There are not inconsiderable costs to this but they are short term to a long term equity holder like myself.

Best wishes,

Prof103

Prof103 wrote:I remain heavily invested in UK FTSE 250 equities whatever the outcome of Brexit. My thinking is that most of these companies have diversified activities round the world. Should trade barriers arise between the UK and the EU, these companies will shift, as necessary, resource (capital and manpower) to within the EU to retain trade. There are not inconsiderable costs to this but they are short term to a long term equity holder like myself.

Best wishes,

Prof103

I agree. I think the FTSE250 is artificially cheap. These are not SMEs - they are big enough to have prepared for Brexit. They can thrive after it, but will be slightly less British as they offshore jobs and operations to countries with better access to their key markets.

First of all, Patience will be required, as around macro events like Brexit, there is often significant volatility.
Resolution of the macro risk will bring the UK back into play and allow portfolios with minimal long UK exposure to be positioned to take advantage of the revaluation of the winners. Secondly, consider looking at investment strategies that take the emotion of the debate out of their decision-making process.
Two strategies investors could consider achieving this goal would be the trend-following strategies, and the short-term, volatility breakout strategies.
Both of these styles have a history of delivering positive returns in volatile environments.

richfool wrote:I'm basically working on the premise that UK equities are under-priced and that at some point when whatever Brexit outcome/solution is arrived at, they will bounce up in price. I am sitting on both FTSE 100 and mid cap stocks and IT's with this hope in mind!

Re the £, I always work on the assumption that it will remain under pressure.

The FTSE 100 is of course not UK facing given its weightings to companies that earn outwith the UK and also earn in other currencies.

I am taking the view that irrespective of outcome the UK has somewhat shot itself in the foot with Brexit, irrespective of eventual deals/outcomes confidence in the UK has to have taken a dent.

I have tended to look to the rest of the world, if I presume I cannot manage timing (which is probably a fair surmise) then backing long term economic trends, for me, is the way to go, so I have slanted investments into ITs in China, Asia, India etc and limited exposure (though I have some) to the UK and EU.

Re the USA I cannot make up my mind so have gone mainly for Berkshire on the basis that if US does well it should benefit and if US falls back it should be in a good position to acquire assets at keen prices, albeit the ages of Warren and Charlie are a concern.

At the end of the day positioning has to be in light of timetable, I am 59 and will be looking to take income in circa seven years, I do not want to be going in and out of positions as at my age poor trading could leave me unstuck with no time left to recover, others may have a different perspective based on where they are in the lifetime savings race.

Kind of interesting that the markets have currently little interest in the quoshing of prorogation by the supreme court, nor seemingly much fear that we could soon end up with a radical government lead by Mr. Corbyn or much interest in Brexit at all.

Compared to how the markets reacted after the referendum things are extremely quiet.

Are things building for a storm in the investment markets or are market participants opinions that none of this will have much effect?

It looks to me like cash is the safest option here albeit with the frictional costs of selling, the risk is of missing out on some big rally, the reward is being able to buy stuff lower if a crash does happen.

Dunno, but interested in how other folk view the investment/trading opportunities here and any sectors they feel might be worth watching as tells for the bigger picture and/or opportunities.

Regards,

odysseus2000 wrote:Kind of interesting that the markets have currently little interest in the quoshing of prorogation by the supreme court, nor seemingly much fear that we could soon end up with a radical government lead by Mr. Corbyn or much interest in Brexit at all.

Compared to how the markets reacted after the referendum things are extremely quiet.

Are things building for a storm in the investment markets or are market participants opinions that none of this will have much effect?

It looks to me like cash is the safest option here albeit with the frictional costs of selling, the risk is of missing out on some big rally, the reward is being able to buy stuff lower if a crash does happen.

Dunno, but interested in how other folk view the investment/trading opportunities here and any sectors they feel might be worth watching as tells for the bigger picture and/or opportunities.

Regards,

You don't consider FOREX a market then?

John

redsturgeon wrote:

odysseus2000 wrote:Kind of interesting that the markets have currently little interest in the quoshing of prorogation by the supreme court, nor seemingly much fear that we could soon end up with a radical government lead by Mr. Corbyn or much interest in Brexit at all.

Compared to how the markets reacted after the referendum things are extremely quiet.

Are things building for a storm in the investment markets or are market participants opinions that none of this will have much effect?

It looks to me like cash is the safest option here albeit with the frictional costs of selling, the risk is of missing out on some big rally, the reward is being able to buy stuff lower if a crash does happen.

Dunno, but interested in how other folk view the investment/trading opportunities here and any sectors they feel might be worth watching as tells for the bigger picture and/or opportunities.

Regards,

You don't consider FOREX a market then?

John

I was more thinking of equities as Forex is not something I personally bother with.

Looking at igindex, the £ is currently strengthening relative to the $, but not by much.

Regards,

Partly with Brexit in mind, I carried out the following transactions over recent days and weeks:

IT's:
Sold CTY - mainly due to its poor capital performance over recent years, along with the fact that, for my liking, it held too much in oil companies and banks, plus the fact that it was trading at a premium.
Topped up MUT (Murray Inc Trust) which had a better capital performance, was at a discount and a yield of 4+%.
Topped up Mercantile ( a mid cap focussed IT), to capitalise on a Brexit outcome.
Topped up TRIG - renewable energy trust
Sold NAIT - to reduce direct exposure to the US
Topped up JPGI to increase global exposure (inc US)
Topped up MATE - multi-asset trust

STOCKS:
Topped up ULVR as it had fallen back significantly
Topped up PRU as it had fallen back significantly and is due to split M&G off.
Added POLY (Polymetal Intl), a gold (and other metals) miner, for some geared exposure to the gold price and in anticipation of a possible recession.

Also posted on IT board:
viewtopic.php?f=54&t=19973