One of the greatest trades of all time was a currency trade. It was a trade by George Soros in 1992. It was well before my time in the financial markets. But even 24 years later the massive bet Soros made is still folklore.
Soros bet against the Bank of England. He shorted the Pound. He made an enormous bet on one single outcome. That Britain would withdraw from the European Exchange Rate Mechanism.
He was right.
Folklore has it Soros made $1 billion from this bet. He put the proverbial house on the line. Some might say it was a flip of the coin. Some might say sheer luck. But it was a well-informed guess, if you ask me. A combination of knowledge and yes, a bit of investment luck.
It made him a legend.
The opportunity to become a legend has popped up again. Will Soros make another substantial bet? I don’t really care what he does, to be honest. I care about what you’re going to do with this opportunity.
Soros probably doesn’t read Money Morning (at least I don’t think), but you do. And while I don’t expect you to make $1 billion off this opportunity, if you do, send me a letter.
In or out? The public decides
The opportunity which presents itself to you now is whether the UK leaves the EU, or stays. I’ve already made my thoughts known in my investment advisory services, Australian Small Cap Investigator, Microcap Trader and Revolutionary Tech Investor.
But I thought that it’s important I get out my view to as many of you as possible. I’m living in the middle of it all. I speak to British people, I see all the debates. I read the articles and get a feel for what the average bloke in the pub is saying as I eavesdrop on his conversations.
And it seems that the ‘average’ UK punter has no idea what’s going on.
That’s still the general theme over here. Most people can’t make heads or tails of the situation. And to be fair, it’s not an easy decision to make. This is a UK referendum.
It’s perhaps one of the most important decisions most people in this country will make. It could have a serious impact on the future of jobs, welfare, the economy, trade, immigration…it could change everything for the UK.
The thing is, because this is a referendum almost every poll says it’s a toss of the coin. Some polls have the ‘leave’ campaign slightly ahead. Some have the ‘stay’ campaign slightly ahead.
Even bookmakers can’t honestly call the outcome. While the ‘stay’ campaign was odds on favourite over the last few weeks, that’s all changed in the last few days. Odds for the ‘leave’ campaign have shortened. That means bookies can’t figure it out either.
And I tell you what, if a bookmaker doesn’t know what’s going on, then we’re all doomed.
The problem here though is that if the UK does leave it could send shockwaves around the world. Heck, the vote is still nine days away and it’s already causing havoc.
But this havoc means opportunity.
The opportunities here are in markets and currencies. Right now the UK pound is weaker because of fears of an exit. If you’re prepared to bet they stay, you’d go long the pound.
Likewise, if you’re backing the stay result then the stock market is at a discount. Yesterday the ASX was a sea of red. Fair chance today will be the same. Maybe for the next nine days even.
But if they stay, expect a rally. Expect the relief to see all markets shoot back up. If they do as I expect, you could find some incredible short term gains. These short term gains will be magnified in the high risk, high reward small-cap and microcap sections of the ASX.
However, you’ve got to make a decision on the outcome. You have to make a bet, just like Soros did. If you want to make serious money, you’ve got to take a view.
So here’s mine.
Why punch a few more holes in an already leaky boat?
When you ask the general population about anything (that’s a choice of two options) then you’re bound to get a ‘too close to call’ outcome. And that level of uncertainty causes fear, panic and general havoc.
Statistically speaking, survey 64 million people and you’ll probably get a 51/49 split one way or the other. However, the closer it gets to the vote the more anxious everyone gets.
That means investors get nervous, markets get nervous…voters get nervous.
There’s a lot of nervousness going on at the moment. And with an economy that is already nervous, that’s not a great thing. People are already worried about the direction of the UK economy. Jobs, immigration, welfare, housing, energy, these are all key issues that dominate this country.
Throw in the most uncertain decision to 64 million average, everyday people and I think the outcome might be easier to call than most predict.
Fear is powerful. Uncertainty is powerful. Anxiety is powerful. Combine them all together and you’ve got one hell of a mixing pot. Apply that to most people’s decision making, and you start to see what’s likely to happen.
That’s what most people have in the back of their minds. Most average people are wondering if they will have a job in three or four years if the UK leaves. Will their house be worth as much in a year or two if the UK leaves? Will their kids have the same opportunities in five or 10 years if the UK leaves?
The reality is no one can answer those questions. There is no answer. No one can see the future. With that incredibly high level of uncertainty, how can you possibly vote to leave?
To be fair you can’t answer those questions either if you rephrase it with ‘if the UK stays’. If the UK stays in the EU there’s still no definitive answer. However, do you really think the average person, the referendum voter, is prepared to ‘roll the dice’?
A recent survey of 600 economists in the UK found that 88% of them would expect a ‘leave’ vote to damage UK growth. 82% of them believe there would be a fall in household incomes. 61% expect that unemployment would rise.
The UK economy isn’t exactly a picture of perfect health right now. To be frank, it’s already a bit of a leaky ship. The EU has a little to do with it. But the bulk of it is domestic issues.
So why would you want to punch a bunch more holes in an already leaky ship? Why would you gamble on an outcome that could negatively impact your life in the short term? Who’s really prepared to take on five to 10 years of even tougher times, all for the bigger picture?
If the UK economy was flying along, I would expect a leave vote. But it’s not. As such, I’m expecting a ‘stay’ vote to win. Most people won’t take a chance on their future. ‘Better the devil you know’ is the more likely outcome.
In nine days when the UK votes, I believe the outcome will be ‘stay’. And if that outcome comes in, markets around the world will blow a huge sigh of relief.
Editor, Money Morning