{"id":35669,"date":"2013-01-23T22:07:52","date_gmt":"2013-01-24T03:07:52","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=35669"},"modified":"2013-01-23T22:07:52","modified_gmt":"2013-01-24T03:07:52","slug":"how-to-play-the-eu-referendum-for-profit","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/01\/23\/how-to-play-the-eu-referendum-for-profit\/","title":{"rendered":"How to Play the EU Referendum for Profit"},"content":{"rendered":"

By MoneyMorning.com.au<\/u><\/a> <\/p>\n

The trend in politics over the past 20 years has been towards centralisation.<\/p>\n

Central governments have gained more power at the expensive of regional and local governments. That\u2019s hardly surprising as central governments have the biggest range of powers to levy taxes\u2026and the greatest power to provide welfare.<\/p>\n

Now, before you stop reading and change channels, we\u2019ll assure you this isn\u2019t one of our libertarian<\/a> rants (we leave that for our new free eletter, Pursuit of Happiness<\/a><\/em>). The reason we bring up centralised government is that one country appears to be on the verge of reversing that trend.<\/p>\n

And it could present you with an outstanding investment opportunity<\/a>\u2026<\/p>\n

Yesterday, UK Prime Minister, David Cameron gave a long awaited speech on the UK\u2019s relationship with Europe. In the speech he said:<\/p>\n

\n

\u00a0\u2018The next Conservative Manifesto in 2015 will ask for a mandate from the British people for a Conservative Government to negotiate a new settlement with our European partners in the next Parliament.<\/em><\/p>\n

\u2018It will be a relationship with the Single Market at its heart.<\/em><\/p>\n

\u2018And when we have negotiated that new settlement, we will give the British people a referendum with a very simple in or out choice. To stay in the EU on these new terms; or come out altogether.<\/em>\u2019<\/p>\n<\/blockquote>\n

This could be the big story of the next four years (the EU referendum<\/strong> is due around 2017).<\/p>\n

<\/span><\/p>\n

Forget the US debt and deficit troubles<\/a>. Don\u2019t worry about China\u2019s booming or busting economy (depending on which of our editors you agree with, check out here<\/a> and here<\/a>). And as for Europe\u2019s various problems \u2014 Greece, Spain, Italy, Ireland, France \u2014 forget about it.<\/p>\n

Make no mistake, this is a huge story. And not surprisingly, the central planners don\u2019t like it. As the BBC reports:<\/p>\n

\n

\u00a0\u2018In Washington, the White House welcomed Mr Cameron\u2019s \u201ccall to remain in the EU\u201d, saying it believed that the UK was stronger as a result of its EU membership.<\/em>\u2019<\/p>\n

\u2018French Foreign Minister Laurent Fabius said a future for the UK outside the EU could be \u201cdangerous\u201d.<\/em>\u2019<\/p>\n

\u2018French President Francois Hollande was clear about his desire to see the UK remain an EU member\u2026<\/em>\u2019<\/p>\n

\u2018German Foreign Minister Guido Westerwelle called for the UK to \u201cremain an active and constructive\u201d part of the EU.<\/em>\u2019<\/p>\n<\/blockquote>\n

But the biggest message from the Eurocrats is it\u2019s clear they don\u2019t like people having choice. Guido Westerwelle says \u2018more integration<\/em>\u2019 would solve Europe\u2019s problems and that \u2018cherry-picking is not an option.<\/em>\u2019<\/p>\n

In other words, they want more centralisation and less choice.<\/p>\n

So, what does this have to do with investing<\/a>?<\/p>\n

\u00a0When George Broke the Bank of England<\/strong><\/h2>\n

There\u2019s nothing big investors (and we mean BIG) like more than key events in highly liquid markets.<\/p>\n

Big investors like these markets because of the amount of money invested. They also tend to be mature, and importantly, they attract sophisticated investment products<\/a>. By that we mean derivatives.<\/p>\n

Think about the stock market<\/a> bubbles and crashes\u2026think about the US housing market bubble and collapse\u2026think about commodity market<\/a> bubbles and crashes \u2014 gold<\/a>, iron ore, and rare earths.<\/p>\n

But also think back to one of the most famous investor attacks on a highly liquid and sophisticated market. We\u2019re talking about billionaire investor, George Soros\u2019 attack on Pound Sterling in 1992.<\/p>\n

If you\u2019re not familiar with the story, the short version is that the UK was part of the European Exchange Rate Mechanism (ERM). The ERM was basically a system where governments and central banks agreed to keep Europe\u2019s various currencies within certain trading bands.<\/p>\n

This would involve the central banks<\/a> working together to buy and sell currencies in order to keep an exchange rate stable. For example, if the German mark was too high against the British pound, the central banks would agree to sell marks and buy pounds.<\/p>\n

This agreement fell apart in 1992 when the UK refused to raise interest rates or devalue the pound.<\/p>\n

Prior to this, Soros made a huge USD$10 billion bet that the UK would be forced to devalue the pound. It turns out he was right. Despite the UK Treasury\u2019s effort to support the pound, the UK eventually withdrew from the ERM, the pound collapsed, and Soros bagged a USD$1.1 billion profit on his trade.<\/p>\n

The mythology of the story is that he \u2018broke\u2019 the Bank of England. He may not have done that, but his profit wasn\u2019t bad for a few months\u2019 work!<\/p>\n

Our bet is that the big hedge funds will start honing in on the UK economy and its markets. The only question is will they see a UK exit as good or bad for UK investments\u2026<\/p>\n

\u00a0Why the EU Referendum\u00a0Will Drive UK Stock Market Down<\/strong><\/h2>\n

With the EU referendum still four years away, it\u2019s too early to think about making short term trading profits. Based on the reaction of the FTSE 100 yesterday, right now the markets think it\u2019s pretty ho-hum. The FTSE 100 closed the day up 0.3%.<\/p>\n

But even though the EU referendum is a long term event, it\u2019s still worth looking at the market to figure out which way the big hedge funds will play it. And considering the UK stock market is now in \u2018overbought\u2019 territory (see Dominic Frisby\u2019s article on the Relative Strength Index<\/a>) placing a bet on the short side could be a winning trade.<\/p>\n

The fact is, we\u2019ve got no doubt that over the next few years the central planners and collectivists will paint a very grim picture of what life will be like for the UK outside the European Union<\/a>\u2026even though it did pretty well for the previous 900 years without European integration.<\/p>\n

And with the next UK election due by 2015, it makes for a fairly unstable four years for the UK markets. That\u2019s why we see the long term trade (2-4 years) for the UK as sell. Especially given the UK\u2019s debt position and the threat to its AAA rating. As the Financial Times<\/em> reported last December:<\/p>\n

\u2018The UK\u2019s prized triple-A credit rating could be set for the chop next year, as the big rating agencies reassess its finances\u2026<\/em>\u2019<\/p>\n

Remember the most important thing, whatever the reality (we personally think the UK will be better off on the outside), the old stock market saying is \u2018buy the rumour, sell the fact\u2019.<\/p>\n

Regardless of what really happens to the UK if it leaves the EU, investors in the market will make up their mind before<\/em> it happens. And if the hedge funds and big investors have anything to do with it, that likely means striking fear into the market and driving it down.<\/p>\n

So, how can you trade the UK? Unfortunately, the Australian share market<\/a> doesn\u2019t have any exchange traded funds for the UK stock market. So the best way to trade the UK is through Contracts for Difference (CFD\u2019s).<\/p>\n

Using CFD\u2019s you can buy or sell individual stocks<\/a>, or our preference is to focus on the index. That gives you the broadest possible exposure to any big bets the big investors may place on the UK economy.<\/p>\n

Just be aware that CFD\u2019s are highly leveraged, so they aren\u2019t for everyone. Before you think about getting involved with them, check out the education section of the main CFD providers.<\/p>\n

But whatever you do, keep an eye on the UK. Our hunch is that over the next couple of years it will surprise everyone and become the biggest talking point in financial markets.<\/p>\n

Cheers,<\/strong><\/p>\n

Kris<\/strong><\/p>\n

From the Port Phillip Publishing Library<\/em><\/strong><\/p>\n

Special Report: The Big Money Secret of Ironstone Mountain<\/a><\/p>\n

Daily Reckoning:<\/em> The Bank of Japan Fires a Pop-Gun<\/a><\/strong><\/p>\n

Money Morning:<\/em> <\/strong>Here\u2019s Why I\u2019m Proudly Bullish About China’s Economy<\/a><\/p>\n

Pursuit of Happiness:<\/em> <\/strong>The WEF: The World\u2019s Biggest Gathering of Socialists, Collectivists and Central Planners<\/a><\/p>\n

Australian Small-Cap Investigator<\/em>:
\nFive Simple Steps to Picking Winning Small-Cap Stocks<\/a><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au The trend in politics over the past 20 years has been towards centralisation. Central governments have gained more power at the expensive of regional and local governments. That\u2019s hardly surprising as central governments have the biggest range of powers to levy taxes\u2026and the greatest power to provide welfare. Now, before you stop reading … <\/p>\n

Continue reading “How to Play the EU Referendum for Profit”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-35669","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/35669","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=35669"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/35669\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=35669"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=35669"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=35669"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}