Is Brexit one big money making masterpiece?

I recently watched a fantastic short documentary on Bloomberg about the lead up to the original Brexit vote in June 2016 and how the events of the night eventually unfolded. The video went in to detail about how the Bloomberg investigations showed that certain hedge funds and potentially even politicians had access to non-public information about the outcome of the vote and that they profited from this.

The video can be seen via the link below.

https://www.bloomberg.com/news/videos/2019-03-15/how-hedge-funds-gamed-brexit-to-make-millions-video

This video got me thinking, is the whole Brexit situation one big “scheme” designed to make money for those with enough power to be able to play the game and the outcome perfectly. Let me explain.

Firstly, please watch the video as it contains a lot of information about how the initial events surrounding Brexit took place. To quickly summarise, it is believed that hedge funds and even a few key politicians knew that the UK would vote to leave the EU based on their own polling surveys that they funded and that this information is considered non-public and therefore illegal to act upon. I even believe that a lot of key “remain” voters involved in this also voted to “leave” in order to further seal the deal and guarantee the profits even though they didn’t believe in it and I will explain why.

Now, let’s say that hedge funds did have access to the information that led them to know that the UK would be vote for the UK to leave the EU back in June 2016 and they did indeed enter big bets that the British Pound would drop in value. What would that mean?

Firstly, the initial drop in value of the Pound would have made them vast amounts of money. The subsequent continued drop in the value of the pound over the 2 years that followed would have also meant that the profit from betting against the Pound and being able to benefit from Brexit would have offset any losses on other portfolios being negatively effected by the UK planning to leave the EU. Essentially, these hedge funds would have used the information to perfectly play the markets and almost perfectly hedge their existing portfolios.

Pound vs US dollar weekly timeframe chart

As you can see from chart above… the Pound lost nearly 20% of its value following the vote to leave the EU on the 23rd June 2016. Nearly half of this was within the first week following the vote to leave. This is a significant opportunity to profit if you happened to know the outcome before it happened. It is also the perfect opportunity to protect your existing positions that could have been negatively effected by the outcome of Brexit but in reality, this didn’t really do anything. If you expected UK stocks to get hit hard by the vote to leave the EU then you were wrong… look at the FTSE 100 chart below.

FTSE100 weekly timeframe chart

The FTSE100 index, an index of the 100 largest companies on the London stock exchange, actually gained in value following the vote to leave the EU in June 2016. A double opportunity to profit from the outcome of the vote and if you knew the outcome before it happened then it was almost guaranteed to make a lot of money.

The main reason why the FTSE gained almost immediately is because of its inverse relationship with the value of the Pound. A cheap Pound means cheaper exports for our goods & services and the majority of the value of the FTSE 100 is deemed to come from exporting good and services.

Now, this is where I think it gets interesting. What if those involved with the initial private funded polls and knowing the outcome of the vote to leave also knew that over 2 years later the UK still would not have left the EU? As it stands, it is looking increasingly possible that we might not even leave at all with the option of a 2nd referendum being called for and further extensions on article 50.

If this was the favoured outcome of those who were in control of the original attempts to predict the outcome and profit from it, then they have played the game perfectly. They used their non public information to profit from the outcome of the original vote to leave the EU and then potentially have used even more “inside” information to know that Brexit would never happen in the end. It was well known that banks and hedge funds were not fans of leaving the EU but if they knew they could guarantee to profit from the initial negative outcome and then still remain in the EU 3 years later, they would almost certainly play that hand.

In terms of trading and profiting from it, those in the know would then simply cash in on their short positions on the pound and their alternative portfolios would be relatively un-effected as the UK economy would continue as normal if it remains in the EU. Things would return to normal with those powerful and rich enough having profited from what is essentially, one big speculative swing in the value of the Great British Pound caused by a huge political and economical event that might not even happen.

As it stands, there are 8 days until the UK is supposed to leave the European Union. No deal has been agreed, a no-deal Brexit is unwanted and there are calls for a 2nd referendum and extensions on article 50 to drag it out even longer. As each days goes by, it is looking more and more possible that Brexit might not even happen at all and that in reality… it was just one big money making opportunity for those that knew this would happen in the first place.

As always, my analysis is done using the fantastic Trading View platform that you can gain access to by clicking the link below.

https://tradingview.go2cloud.org/SH3bP

Thanks you for reading and I hope you enjoy my thoughts on what is going on in our country.

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