It is one of the most diabolical plots of all time, a conspiracy so vast, so deep, and so wicked it could have come from the pen of Dan Brown. A small cabel of powerful hedge funds have installed Boris Johnson at Number 10, paying for his campaign and his advisers. Once there, his task is to crash the UK out of the European Union without a deal, plunging the economy into chaos, and sparking a rout of sterling and a collapse in the FTSE. In the background, those same hedge funds will have ‘shorted’ the pound and the London equity market. In the process, they will make a few quick billion before they disappear to their Cayman Islands’ mansions to sip champagne and chuckle over the brilliance of their scheme.
Over the last week, some hard-core Remainers have been caught up in the ‘disaster capitalism’ explanation of Brexit. On Twitter, admittedly not the most sane forum, it is taken pretty much as gospel. And it has even been tacitly endorsed by former chancellor Philip Hammond and by plenty of other respectable commentator. Indeed, the idea that our departure from the EU has been largely driven by mysterious speculators looking to make a quick buck from our misfortune has been a constant theme since the referendum.
There is a problem, however, and it is not exactly a minor one. No one who had even the faintest idea of how either hedge funds or the financial markets actually work could possible believe it. On only a cursory examination, it is clearly complete nonsense.
Why? Just for the sake of argument, let’s suppose a hedge fund manager had decided that bunging Boris a couple of hundred grand, making him Prime Minister, and then getting him to leave the EU with no deal was a potentially profitable trade and would at least make a change from betting on the price of gold, or whether the Fed would cut interest rates, or shorting Volkswagen, or all the other stuff you get up to in a normal week in the office. And then you suggest it to your colleagues. Immediately you are going to get some very weighty objections.
First, the market reaction is actually completely unknowable. It is quite possible a hard Brexit, for example, has already been priced into sterling. After all, it wouldn’t exactly be unexpected. It is quite possible the pound will actually rise if it happens, especially if the fabled shortages of food and medicine, riots, plagues of locusts etc turn out to have been just a little over-hyped and the world carries on turning much as before on 1 November. Then you will lose billions, rather than make them.
Next, the time lines are way too long. Successful traders look to make some money within days. But the whole Brexit saga is going to play out over several months. Anything could happen to mess up your short position before you can cash out. Finally, there are way too many variables in the mix. A proper short position is dependent on one or two possible outcomes (M&S issues a profits warning, for example, or the Bank of England cuts interest rates), not dozens of them. Too much can go wrong, and you only make money if the plan runs like clockwork.
The net result? You would decide against it, on the very simple grounds it would be a terrible trade and one that would be more likely to lose you money than make it. If a hedge fund wants to make money by speculating – and, sure, of course plenty do – there are many, many better ways than installing Boris Johnson in office to crash us out the EU.
For example, you could short Metro Bank, or Pearson, both on the list of the companies most speculated against on the London market this week, on the grounds they are a bit rubbish and their share prices will probably carry on going down. Or any other currency, country or company for that matter. Any of them would have more chance of success than the Boris trade.
The conspiracy theory might be fun for some Remainers. It might offer a few glimmers of psychological comfort. And it may even help some of them avoid the horrible possibility of considering that the reason the Prime Minister is thinking about leaving without a deal is because that is the only way to respect the referendum result. But no one else should take the conspiracy in the least seriously – for the simple reason it is a complete fantasy.
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