With knife-catching "value" investors proclaiming yesterday that any dip today would be an opportunity, it appears once again that faced with the reality of Brexit blowback, no one (not even the central banks) are buying the f##king dip). As Bloomberg's Mark Cudmore exclaims "Don't be a hero," to those value-investors, warning that "most of the market is still in denial."
This vote for Brexit is a momentous event in history. The ramifications will take time to play out. Don’t try to be clever today. For market participants, self-preservation is paramount.
There will be plenty of opportunities for traders to try to profit from this shift (if they are so inclined) in the weeks ahead. But the risk-reward ratio in the short-term will remain terrible.
Part of the reason this is such a negative event for global markets is that there is so much uncertainty how it plays out.
Most of the market is still in denial. Many people are highlighting that the referendum has no legal effect and may not be ratified still. Even if that was the case, such a public rejection of democracy would hardly be a positive.
Central-bank action in the coming days is likely -- both in currency markets and through extraordinary monetary policy.
The reason why bear markets cause such financial pain isn’t just through the wealth-destruction effect. Bears themselves can also lose money as volatility remains so high and liquidity so low that relief rallies can be powerful and force shorts to be closed at extreme levels.
The one certainty that everyone should now cling to is that there is no certainty. Do the rest of the EU become tighter or splinter further in the coming months? This is the first major step against greater integration since the project began.
What happens to banks based in the UK? What happens to sovereign debt deposited at the ECB? What happens to company plans and EU employees? What happens to funds who have sterling-denominated collateral?
An important warning: global equity markets closed higher the week of Lehman Brothers collapse -– the real move lower didn’t start for two weeks. Don’t get lulled into complacency in the weeks ahead; the consequences will take months to play out.
Keep cautious, nimble and flexible. The world economy and markets will eventually move on and adapt -– it just may take some time