Introductory Note: Ever since Brexit, I have ranted often and at length concerning the vote and the next steps. Here follows a multi part series where I attempt to condense these rants into structured arguments. As always, comments are positively encouraged.
When the electorate of the United Kingdom were presented with a sixteen word question on 23 June 2016 they did so in the knowledge that they were being afforded their say on arguably the most critical question ever asked of the nation. That this was the most important vote of their lifetime seemed to be just about the only matter that both the Remain and Leave camps could agree on, showcasing the difficulty of the dynamic that the country faces ten months on from this fateful day. Indeed, the question posed to the nation was remarkably simple - Should the United Kingdom remain a member of the European Union or leave the European Union? - although the eventual outcome is anything but. Yet, the referendum was utterly incapable of determining the next steps.
Whilst the Leave vote did have official representation in the form of Vote Leave, they held no authority to determine what comes next. As a consequence, they were free to offer whatever they wanted safe in the knowledge that the eventual calories would never pile onto their waistline, or that their current waistline would ever be held to account.
You want immigration controls? Well, we can give you that. You want to take back control in general? Yes, we can offer that too. 350 million per week for the NHS? Let me get my chequebook. You want to sock it to the politicians? This is your opportunity. Iain Duncan Smith will even provide the transport. In comparison the Remain campaign, hamstrung by the actual and diplomatic realities of power, were constrained to offer such treats as 'No, Turkey is not in line to join the EU', and 'better the devil you know'. The latter in particular was a total misread of the public mood. A public who felt and continue to feel the actual effect of the late noughties financial crisis. A crisis in fact which the (otherwise miscast) 'elites' have been sheltered from and have arguably never fully understood the actual impact it has had on families across the nation.
Quite frankly, the standard of the discourse leading to the election was an all time low. At times it felt more like a Reality TV show chronicling the career of Boris Johnson than a discussion as to the future direction of a nation. Let alone the topic being arguably the most engrained and complicated of all issues facing the nation. Indeed, one could argue that leaving this option in the hands of citizens was an utter betrayal of the principles of representative democracy.
Immediately after the polls closed we were informed by some that a slender margin such as 52% opting to remain would not lead to the EU question going away. A message which curiously disappeared once 52% had opted to leave and which would subsequently lead to such farcical headlines as 'Enemies of the People', 'Saboteurs' and democracy deniers for anyone who dared to query the mandate offered by the referendum.
Still, what should the leave vote have led to? Well, in accordance with speeches by the only man with true authority, the Prime Minister, it should have been the immediate trigger of Article 50 and departure from the Single Market. Those two points, whilst actually countered by many of the leave camp who understood the immediate mess this would bring and possibly countered their otherwise legitimacy, were mainstays throughout the campaign but immediately discarded by the Prime Minister who recognised the fallacy of his position following the vote. So, the need to anoint a new leader of the nation.
However, ten months on we should now have clarity on the direction the country is seeking to go down. But not only do we not have that, we have polls showing that a majority of people still want to belong to the Single Market or Customs Union despite the new Prime Minister ruling these out. Worse still, the same polls show a staggeringly high proportion of Leavers undecided on these topics.
In law there is a concept of 'informed consent' whereby a contract can be declared null and void if one party did not fully understand the agreement. For obvious reasons this does not apply to political agreements, but one has to be concerned about the legitimacy of any agreement when there is substantial cloudiness over what has been agreed to. Even if one took the undecideds to remain so only on account of the complete picture being unknown (i.e. trading options are dependant upon other more important aspects), it still highlights the tenuous nature of the vote.
Now, the upcoming general election looks to set out even fewer certainties concerning the Brexit decision. What is the position of EU citizens? What is the divorce bill? What will be the future trading options? Do we need to cap immigration? What can we offer other countries we need to set up trade agreements with?
The same electorate who were entrusted with the future of the country ten months ago are now treated with the derision of vacuous soundbites concerning 'strong and stable leadership' and the need to give a 'strong hand' for negotiations despite the public already having voted for Brexit and Parliament having approved the official trigger to negotiations. However, the truth is that a General Election is not required or able to lend credence to Brexit. As it currently stands, it is nothing but an irrelevant sideshow.
Meanwhile, those who cite remainers as being democracy deniers could not be further from the truth. Brexit showcased a disillusionment with the current direction of the country but gave no mandate for next steps. The only democratic justification for Brexit can be a future referendum with specific options for the next steps, along with an option to remain. Then, and only then, can it truly be said that the British public have endorsed Brexit.
Over the past two years I have traded three very distinct, extraordinarily unique and utterly disturbing political events. What follows is my attempt to distil the key lessons from these markets, even if I feel that the similarities to the impending General Election are quite low.
By way of background, I have only ever entered the markets after the polling booths have closed. There is no doubt that there is extreme opportunity before the polling booths close but that is beyond the scope of this post. Equally, whilst these markets have ended up with some of my largest 'one and done' profits, this has largely been on account of my refusal to hedge on account of diametric opposition to the eventual outcome. (not a recommended approach) Also, this post relies solely upon my memory so exact timings / odds may not be entirely accurate.
I would also note that at all times, my approach consisted on focusing on both the eventual outcome and side markets with multiple options. Clearly, I won't be contesting the markets as keenly this time around so I am not losing anything when I say that the latter is traditionally more advantageous. After all, the more options available - subject to sufficient liquidity - the more opportunity there is to take positions. Equally, at a time when the likelihood of an underdog win is considered highly remote, multiple option markets could turn into the only real trading possibilities.
Obviously it goes without saying that the initial reaction - be it exit polls or the first confirmed results are vitally important. In all three events, the expected outcome has been heavily queried.
In the UK, exit polls have been rather reliable for some time now due to the very precise methodology that has been developed. I would query the likely accuracy of the exit polls this time as I consider that local swings will be much more volatile than national, but these should provide an opportunity. These provide a RESET button, although knowing the initial base is highly critical for reasons I shall come onto. I still have recollections of a Conservative / UKIP coalition trading in double figures after the exit poll in the 2015 election. Whilst this may have been partially due to low volumes, my bemusement at this was on account of the polling that predicted no (or tiny) UKIP advancement. Certainly, the notion they would have produced enough MPs to be party to a coalition was easily double figures itself!
Equally, I recall in all three markets that the initial movement was held up (or even reversed) after a short while. It was almost as if the market did not trust what it had been told. However, if a football team goes 2 - 0 up; even if it is a Conference side against a Premier League outfit, you must a) consider the advantage they hold but b) consider the reasons for that advantage.
Now, that's not to say that a Conservative majority government in 2015 should have seen that plunge to odds on from double figures, or that the Newcastle vote should have made Brexit favourite, but was it really right that a dynamic shift in expectations moved the market from 1.06 to the 1.2s? Make no doubt about it - for me the better price to lay (a bet, not a trade - 1.06 was a ridiculous trading price) was 1.2 when there was clear evidence to support a leave victory.
Political trading for mine also differs from normal trading in that I do not recommend an exit point. To start with, these are short events subject to rapid changes so stakes should be applied that you are comfortable with. However, the potential market movement and event developments are so diverse that you cannot accurately plan. What may look like value at one moment can be instantaneously turned on its head.
As should your approach. Do not be afraid to admit errors. I remember that I regularly initially sought to lock in a profit (usual approach) and then ended up reversing that into an alternate position when events suggested that, although I lost a couple of ticks, I should reverse (political approach). This is obviously easier in high liquidity markets but the recent volumes traded on politics suggests that this should not be an issue.
However, you can only take that approach if you are fully aware of what the key areas are. Clearly if you are trading the political markets you will have good knowledge, but you can always have more. Say there's a 6% swing in an early declared North East swing this time around. What is the sitting MP's Brexit position? What was their role in the campaign. How are the fringe parties contesting the seat? That's not to say that you need to have a filofax on every constituency and its area, but focus in on areas which you think could be critical. In the US election, the swing states were well known but were the voter precints?
Finally, in all markets there has been a spell where the outright value has been greatest. A few hours in, there is usually sufficient empirical evidence available to strongly indicate what the eventual outcome will be. Use it. I would say that those trading the markets have been spoiled recently as the sheer drift of the overturns has been such that there seems to have been a point in the evening where profit has looked to be secured.
Ironically, despite a tendency to green up myself far too early, this has been where the best value has originated. I seem to recall Leave being 2.0+ at 2 o clock in the morning even when all results were beginning to show a fairly steady swing away from expectations and of the size that would produce a Leave victory. Why did the price take so long to move? Well, I would suggest that was caused by those looking to lock in a profit and the sheer scale of the movement. You cannot sprint a 800m race for instance! However, if you are only doing a 200m race you can speed by and take the baton.
After this, I seem to recall there then being large swings as the markets cotton onto outcome reality and the battle between value and profit looks to reach maximum intensity. At this time if you are confident in your approach, you can look to add to your profit with consistency. These markets are not linear. There will be bumps in the road and if you sit there with a net waiting for one to be hit, you can occasionally collect.
Then, you can sit back. Knowing your pocket has been padded but knowing that the despair you may feel over the upcoming months will not have been truly recompensed by the outcome the public has chosen. But that's another story. For another day. For now, those are my initial reflections on trading political events. The biggest question that now remains is whether a similar reversal will happen this time...
As ever - any feedback is greatly welcomed; especially as I look to get back into blogging and am aware of the need to refine my style. Or, if anyone wishes to discuss the markets themselves further, feel free to message me on Twitter @ TheRealMoaner
Footnote - Main Markets Traded:
Politics / 07 May 2015 General Election : Overall Majority
Politics / 07 May 2015 General Election : Next Government
Politics / EU UK Membership Referendum : EU Referendum - Brexit
Politics / EU UK Membership Referendum : EU Referendum - to Remain Vote Percentage
Politics / 2016 US Presidential Election : Next President
So, if you are here, you may remember me from such inane mutterings on sports trading as how to trade the draw in rugby league, or laying sub 1.1 shots which somehow came off nearly almost as often as called, or how I was an idiot who couldn't hold his nerve when push came to shove. Or you may have just come here from Twitter, or stumbled across this page from nowhere. Regardless, welcome.
Over the past couple of weeks I have been looking for a reason to return to blogging and I am very grateful that the Prime Minister herself took time out of her schedule last Tuesday to provide me with an opportunity. For, at least over the next 6 weeks, I will look to focus my articles on the upcoming general election - using my recent experiences on Betfair primarily to offer insight on event trading and anything else which occupies my mind at 4pm on some idle Tuesday. (probably politics in general)
You'll have to bear with me though. I have never been the most judicious at using the English language (or writing, as you may say) so it may take some time for me to get back into the flow.
As for how things went personally in the six years since my last post, pretty well, thanks for asking. I'll cover this more at a later date but one of the main reasons I have looked to return to blogging is on account of reaching PC2 and the need to find some new interests to occupy my interests on a Saturday night as I feel the air is getting hot...
"So we need a general election and we need one now, because we have at this moment a one-off chance to get this done while the European Union agrees its negotiating position and before the detailed talks begin." claimed Theresa May on the doorstep of 10 Downing Street as she sought to justify the ripping up of the Fixed Term Parliament Act.
General Elections always have key themes: It's the economy, stupid. Things can only get better. The pound. The coalition of instability. Yet, the central theme is always in the name. General.
The economy, NHS, schools, pensions, immigration, international development, you name it. Anything and everything is to be debated and decided upon prior to a general election. Indeed, the sheer variety of options on offer to the electorates often render a final decision incapable of being positive agreement. More, a considered 'least worst case option.' And that's not even considering the fact that public personalities always skew results to be more than just about principles.
But so it is that we approach the 2017 election, with such views being even more obscured than usual on account of the impending Brexit negotiations. To be frank, how can anyone choose whether to support a high or low tax agenda or an interventionist or laissez faire state approach when the underlying state of the economy is so murky. For those who attach themselves to such principles, Brexit may be no more a decider than an outcome. However, the number of people who hold such iron clad views is little more than a statistical anomaly in comparison to the electorate as a whole.
Yet, we are to believe that this election will, above all else, provide a 'mandate for Brexit'. A mandate for Brexit which apparently was not sufficiently delivered by a 51.9% support in June 2015. Despite this result being viewed as 'THE WILL OF THE PEOPLE'. Despite this result being nearly universally supported by a newspaper media frothing at its mouth over the outcome. Despite this mandate being wholeheartedly supported by 80% of the House of Commons, in contrast to the 51.9% support for Brexit per se.
This is my major difficulty with the 2017 election. It is being called, ostensibly, to provide support for a cause which has already been supported when this cause will not be entirely reflective in the final outcome, unlike the previous referendum. Of course in reality, the election has been called to exploit the current difficulties experienced by the official opposition whose leadership has sought only to alienate the vast majority of the constituents it looks to represent whilst the anti Brexit party continues to be hamstrung by its U turn on tuition fees (even if the current government's U turns are both more heavily numerous and significant).
More so, I do not believe that the electorate will cast their vote solely on account of Brexit, no matter the pre agenda coverage. Whilst Brexit is indeed the number one topic in the political classes, it is not necessarily so amongst the general public. Especially when we have not yet left the EU so are unable to confirm just how things will change. The general public may well have their primary concerns which are Brexit topics, but they may equally be influenced by a recent incident at a hospital, or their child's school. Perhaps they may be most concerned by who will most keep the nation safe in view of the global terrorism threat. Their latest energy bill could push them to the direction of a party which promises to regulate these. They may even vote on account of how they view their local MP or the performance of the political parties as a whole.
So this election will, in all probability, produce a result which explicitly supports the course of action the Government plans to take. It will certainly be used as such. Yet, whilst the Prime Minster may claim that this result will bring Westminster together as the country is coming together, specific Brexit polls which show steadfast 45% opposition in together with the c. 5 - 10% of the country who are diametrically opposed to Brexit will continue to feel alienated. Only, this election looks to further quieten those who continue to believe in the 48.1% of the country who disagreed with this policy decision.
A decision which looks likely to succeed in the short term but which may only increase the volume at a later date. Although by then the noise could well be cancelled out by something else.
