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Does Trump Lack The Cash (And Campaign Organization) To Beat Clinton?

 

Hedgeye Potomac Chief Political Strategist JT Taylor takes a looks at cash concerns inside the Trump campaign, and what the firing of controversial campaign manager Corey Lewandowski means going forward.


Markets Underestimate Brexit Odds

Below I include a recent note on Brexit from our new head of the Demography Sector, Neil Howe. If you missed Neil's official launch presentation last week, I highly encourage you to review his video presentation.  Neil is an all-star in the demography arena and we're excited about how his work will enhance our Macro team's research.  If you'd like to learn more about Neil and his research please contact .

 

While my opinion (see research) remains that Brexit will not prevail at this Thursday’s vote – note that recent polls are swinging towards this opinion — it remains an incredibly close vote and Neil’s commentary offers insightful context to this most historic vote.  

 

-Matthew Hedrick

 

Markets Underestimate Brexit Odds - Brexit1

 

"Patriotism is a strong nationalistic feeling for a country whose borders and whose legitimacy and whose ethnic composition is taken for granted."

--Michael Ignatieff

 

The ghastly murder of MP Jo Cox midday last Thursday by a deranged Brexit supporter triggered a revulsion rally for the Remain camp later that afternoon and Friday. The steep UK market declines earlier in the week were reversed in a sudden bounce. During the last 12 trading hours of the week, the £/$ surged (from $1.41 to $1.44) and the FTSE100 gained just over 2%. Meanwhile, Betfair odds in favor of Brexit, which peaked at 41% midday on Thursday, plummeted to 35% on Friday--and still further to a volatile 28`% by Sunday evening. In early Monday Asia trading, the pound soared to $1.46.

 

Possible drivers behind the falling Brexit odds: New polls showing the Remain side gaining on the Brexiteers; forecasts for gorgeous weather next Thursday; and the Remain endorsement by the Daily Mail.

 

These are all substantive drivers. But they don't justify a turnaround of this magnitude. The markets--and specifically the oddsmakers who are driving the markest--have gone too far.

 

Yes, the pro-Brexit margin in the polls is down somewhat since early last week. But even the new weekend polls show the two sides in basically a dead heat. Take a look at the following list of polls compiled by ft.com, and you will be hard pressed to detect much of a swing.

 

Markets Underestimate Brexit Odds - Brexit2

 

The bigger question is why the Brexit camp has made such substantial gains over a longer two- or three-month time frame. A month ago, I predicted on Hedgeye TV (on the basis of other Eurosceptic votes in the EU) that a rise in the pro-Brexit camp would come mainly from a pro-Brexit shift in young voters. That's exactly what's been happening. Back in April and May, according to the prestigious ICM poll, Britons under age 35 were pro-Remain by 27-to-30 percentage points. In ICM's latest (June 10-13) poll, that margin has shrunk to 14 percentage points. Though youth overall remain firmly in the Remain camp, a fall in the pro-Remain youth margin has played a major in pushing the pro-Brexit trend since early May.

 

Interestingly, the demographic profile of a UK Brexiteer is strikingly similar to that of a US Trumpista: Disproportionately white, rural, working class, distrustful of large political and business institutions, and somewhere between age 45 and 65. Support for both causes falls slightly over age age 65 and dramatically under age 35.

 

But let's return to the last few days and the dimming oddsmakers' outlook for Brexit. Weather? Yes, good weather favors the Remain camp. But that's because the Remain voters just don't care as much. Everyone acknowledges that the Brexit voters are vastly more motivated and would walk over hot coals to cast their vote. The Remain voters are more like "Meh, I suppose we should stay." This has to be a plus for Brexit--since we really aren't sure if all the Remain supporters will show up to vote even on a sunny day.

 

As for op-eds, Murdoch's The Sun (with the largest circulation of any UK newspaper) just announced for Brexit--joining the Daily Telegraph and the Daily Express. And even many of those backing Remain (such the Daily Mail and The Times) sound almost apologetic about their stand--unlike the Brexit op-eds, which brim with conviction. While backing Remain, for example, The Times admitted that the EU leadership is "undemocratic, meddling, and short-sighted" and is not "truly listening or open to reform." But yeah, well, we should stay in anyway.

 

What makes all the polls hard to interpret is that the two campaigns are appealing to entirely different regions of the voter's brain. The Remain arguments are all about bean counting, cost-benefit analysis, and losing maybe a percent of GDP. If they rouse any feelings at all among voters, it's the dreary anxiety (per Chancellor George Osborne) that their wages may rise less and their taxes may rise more. The Brexit arguments, on the other hand, are passionate appeals about regaining national sovereignty. Once you hook voters with that, the Remain arguments become irrelevant. To preserve our nation, who cares what the costs are? It's Winston Churchill time. It's "fight them on the beaches" time.

 

It's head versus heart, left brain versus right brain.

  

This stark asymmetry in motivation may again work in Brexit's favor. The very fact that the financial media and multilateral organizations (from the FT and Economist to the IMF and World Bank) tirelessly lobby for Remain feeds the nationalist flame of the working-class Brexit supporter. As do the endless and condescending exhortations by foreign leaders, from Barack Obama to Francois Hollande. French Economic Minister Emmanuel Macro just declared that Brexit would "make the UK about as significant in the world as the Isle of Guernsey." Touché! I'm sure that will get many a John Bull to ponder and reconsider.

 

The Telegraph's Ambrose Evans-Pritchard, a celebrated financial journalist who is exquisitely informed about the economic costs of Brexit, came out in favor of Brexit last Thursday with a telling headline: "Brexit vote is about the supremacy of Parliament and nothing else: Why I am voting to leave the EU."

 

Oddsmakers continue to favor Remain because (they say) voters tend to shy away from big risky innovations when they actually vote. Brexit would need a sizeable lead in the polls in order to just squeak by on decision day: Witness the referendum on Scotland or the various succession votes on Quebec. But these may not constitute valid comparisons. Scotland and Quebec were integral parts of their respective nations for centuries before these votes. Independence really would have been a step forward into the unknown. The European Union, on the other hand, is only 24 years old (since the Maastricht Treaty), and most Britons have never felt any social or cultural connection to its Brussels- and Strasbourg-based leadership. Brexit can be plausibly billed as a step backward into the known.

 

As intermediaries, of course, oddsmakers can't just choose the odds on their own. They need to adjust the odds in response to the demand for bets on both sides. And by all accounts, the bets are as asymmetrical as the voters: Individuals making small bets are largely pro-Brexit; institutions making big bets are largely pro-Remain. And since the markets are responding to these odds, it is possible that some institutions may be flooding the bookies with bets not to win the payout on voting day, but to influence markets before voting day. Quite simply, nothing about the coming vote is certain. If oddsmakers are getting pushed around by investors not out to win the bet, then all we get is noise. Even if they are all out to win the bet, the best they can do is look at the pollsters. Yet these pollsters themselves failed miserably in their last test in 2015--when they were blindsided by the scale of the Tory victory.

 

Our Keith McCullough calls the Brexit vote a coin-flip--and no one wants to trade on that. But I will wager that the true odds of Brexit are considerably higher than the 28% now quoted by the bookmakers. This matters because in recent weeks the £/$ rate has fluctuated inversely with these odds quotes.

 

Markets Underestimate Brexit Odds - brexit3

 

At the very least we can expect, between now and the announcement of the referendum results (at around 11 pm Thursday U.S. eastern time), that the pound risk is mainly on the downside and the dollar risk is mainly on the upside. Even if Brexit loses, tightening odds could easily pull the FXB back down to 140 by June 23.

 

And if Brexit wins? Well, in that case the consequences may be every bit as dramatic as the alarmists suggest. David Cameron may be forced to step down in favor of Boris Johnson, handing over leadership of the ruling Conservative Party to its "Trump" wing. UK's trade agreements and London's status as a financial hub will be thrown into limbo well into 2017. The EU's prestige will take another beating, as many Euro-skeptic parties on the continent press for their own exit vote (Frexit, Nexit, Spexit…). Safe-haven capital flows will push long-term sovereign yields to new lows worldwide. Gold will pop. The Fed may rethink its whole game plan. Many dominoes will teeter and fall.

 

If you're short the pound, this will be your payday.

 

Still, the bookmakers say that Brexit is very likely to lose. And there's a lot to be said for their view. Why in the world would the British vote for a course of action whose economic costs are so clear and so certain? Could the mere idea of national sovereignty be so important to them?

 

It's instructive to think back 34 years, to 1982, when a military junta in Argentina decided to invade a couple of barren and barely occupied islands off its coast. They were called the Falklands. Yes, the UK claimed them, but almost no one, not even many Brits, had ever heard of them. The junta logically figured that since the islands were worthless, and since the cost of sending a counter-invasion fleet to Argentina would be astronomical, Britain would surely just let the Falklands go. Incomprehensibly, the British public paid no attention to the cost-benefit calculators. They were adamant about keeping the islands. PM Margaret Thatcher gave her nod, and several weeks later a vast British flotilla was steaming south across the Atlantic.

 

As Paul Harvey would say, we already know the rest of the Falklands story. And very soon, late Thursday night, we will know the rest of the Brexit story.


Cartoon of the Day: Short-Sighted

Cartoon of the Day: Short-Sighted - Brexit cartoon 06.20.2016

 

Investors caught up in Brexit risk can't see the forest for the trees.

 

"Our long-cycle call for #GrowthSlowing won’t die this morning either," Hedgeye CEO Keith McCullough wrote in this morning's Early Look. “No Brexit” or not, it’s booked until at least Q3/Q4 when macro markets have fully priced it in."


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.43%
  • SHORT SIGNALS 78.37%

Why WisdomTree Still Has 50% Downside | $WETF

Takeaway: Dark skies for WisdomTree don't appear to be abating anytime soon.

Shares of WisdomTree (WETF) are down over 35% since Hedgeye Financials analyst Jonathan Casteleyn issued his short call earlier this year. In the excerpt below from The Macro Show this morning, he explains why WisdomTree funds are hemorrhaging money and are overly dependent on easy money.


Buying European Banks? Good Luck With That

Editor's Note: Hedgeye Financials analyst Jonathan Casteleyn was on The Macro Show this morning discussing Brexit, European equities and a number of his high-conviction long and short calls. Below is an abridged transcript from today's episode in which Casteleyn explains why investors in European equities should "avoid the whole region."

 

Buying European Banks? Good Luck With That - europe geography

 

“This is what I think we should be talking about in Europe. The region is actually really unappealing as you can see in this time series of European bank stocks [see below].

 

Out of the 2008-2009 Financial Crisis, you saw a slight rebound in the banking sector but there’s been no recovery. Rates are down, growth is down, deflation is moving into the economy and there’s been no rebound in financial company profits. Essentially, the banks are dis-incentivized to make loans because they can’t do it profitably.

 

Buying European Banks? Good Luck With That - european stocks 6 20

 

Remember, this chart has nothing to do with Brexit and is proof that the financial sector is not a place to invest. Since credit is the lifeblood of the economy, the pull forward of consumption, Europe is in massive distress.

 

We just want to avoid the whole region.”


Call Invite with Top Washington Political Strategist Scott Reed

Hedgeye Potomac is hosting a call with one of Washington’s top political strategists, Scott Reed.

 

Reed will discuss the efforts corporate America will be undertaking on behalf of pro-business candidates this fall – as well as the outlook for control of Congress, the Republican and Democratic Conventions and the state of the presidential race.

 

The call will take place tomorrow, Tuesday, June 21st at 11am ET with prepared remarks from Reed followed by Q&A.

 

ABOUT SCOTT REED

 

Scott Reed is the senior political strategist at the U.S. Chamber of Commerce. He is responsible for overseeing the Chamber’s federal voter education program. Reed created and implemented the blueprint for that strategy to help recruit business-friendly candidates, overseeing traditional and digital advertising campaigns, and identifying credible messengers to showcase the importance of the free enterprise system.

 

Reed was campaign manager for Bob Dole’s 1996 presidential campaign. He oversaw the national campaign, which included political strategy, policy development, communications, and advertising during the GOP primary and the general election. In addition, he directed preparations for the 1996 Republican National Convention in San Diego and the vice presidential selection process of Jack Kemp. In 1993, Reed was appointed executive director of the Republican National Committee. He served as chief operating officer of the GOP during the historic elections in 1993 and 1994 when the Republicans gained control of both the House and the Senate for the first time in more than 40 years. During the Bush administration, Reed served as chief of staff to Secretary Jack Kemp at the Department of Housing and Urban Development. He directed personnel, political, and policy matters, employing a long-term empowerment and privatization program. 

 

CALL DETAILS

 

Toll Free:

Toll:

UK: 0

Confirmation Number: 13638941


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