The World After Brexit Over the last few days, we’ve already spoken with numerous clients about the potential financial and regulatory impacts of the UK’s vote to leave the European Union. As the referendum’s outcome reverberates through the markets, here are a few key notes: 1) What happened in financial markets? The British pound plummeted 12% overnight from Thursday, nearly doubling its worst ever one-day percentage loss that occurred in 1992 when it came under speculative attack and fell out of the ERM – it has continued to fall sharply today. The euro also weakened substantially, while the Japanese yen strengthened considerably as the safe-haven currency of choice (the Swiss franc’s pressure to appreciate was mitigated by Swiss Central Bank activity). Bonds from the US to the UK to Germany rose sharply, anticipating expansionary monetary policy to ward off recession.…

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Hedging Lessons from Brexit On Thursday, British citizens will vote in a referendum posing this question – “Should the United Kingdom remain a member of the European Union or leave the European Union?” The result will have sweeping implications for trade policy, the flow of immigrants, and even the continued viability of the European Union. Hence, as the referendum’s projected outcome has shifted from Remain to Leave and back again, worldwide currency, interest rate, and equity markets have swung wildly. As a global company with operations in the UK and Europe, we’ve been monitoring the referendum buildup closely. In addition to its anticipated economic and political impacts, there are also numerous valuable risk management lessons, including (1) The best time to buy insurance: The cost of seasonal hurricane insurance on an Outer Banks home skyrockets once there’s already a Category…

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The Black Swan of Leicester Last summer, London bookmakers were updating their odds list for the most outlandish possibilities. Cantankerous TV personality Simon Cowell to become Prime Minister: 500/1. The Loch Ness monster to be discovered: 500/1. Her Majesty the Queen to release a chart-topping hit that Christmas: 1000/1. Kim Kardashian to become US president: 2000/1. Elvis to be found alive and well: 2000/1. But then the bookies took a more preposterous step; they offered 5000/1 odds that humble soccer team Leicester City, having barely escaped being relegated (i.e. unceremoniously dumped to the lower leagues) the season before, would win the English Premier League. Now the English top-flight soccer league constitutes a pure plutocracy – the wealthiest clubs buy all the best players, and with neither annual draft nor salary cap to restore some semblance of parity, the top five…

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A Hedge! A Hedge! My Kingdom for a Hedge! Four centuries ago, the most influential English-language playwright in history was laid to rest in Stratford-upon-Avon. Yet since April 25th, 1616, William Shakespeare has captivated four centuries of audiences and readers with his masterful dramatic arcs, playful neologism, and comprehensive depiction of life’s full breadth. In fact, Shakespeare’s astonishing thematic scope led Ralph Waldo Emerson to declare: “What point of morals, of manners, of economy, of philosophy, of religion, of taste, of the conduct of life, has he not settled? What mystery has he not signified his knowledge of?” As we reflected on Emerson’s adulation, it dawned on us that if Shakespeare really did settle all points of the economy, he must have written plenty about risk management. We spent the weekend curled up with our college Shakespeare text and, as…

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Chatham, the Routehappy of Derivatives Spring is here and it’s time for a vacation. Now that you’ve committed to take some time off and indulge in the fruits of your labor, it’s also time to secure among the most important of vacation details, your travel. And if you’re travelling by air, the search for airfare isn’t necessarily easy. Navigating the throngs of websites, special offers, flash sales and frequent flyer pricing can initially be invigorating, almost euphoric as you get that much closer to a beach chair. But once payment is confirmed and the fine print is read, the vision of palm trees and blue skies is quickly clouded, leaving you to ask, “Did I really get a good deal? Was now the best time to buy?” Airlines are constantly engaging in all kinds of sales practices based on dynamic…

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For the first time in forever, to coin a phrase, an original film about finance could claim the Best Picture Oscar this coming Sunday. Much of the field looks eerily similar to us – there’s Leonardo di Caprio showing gritty resolve despite betrayal and wilderness conditions (The Revenant), Matt Damon showing gritty resolve despite abandonment and Martian conditions (The Martian), and Tom Hardy showing gritty resolve despite cruelty and post-apocalyptic conditions (Mad Max). But The Big Short walks a far more innovative path, largely by assuming its audience actually wants to understand key financial concepts. To do so, it enlists celebrities to explain critical concepts in riveting parables, like when chef Anthony Bourdain depicts collateralized debt obligations via day-old seafood stew, which is no longer “old fish” but transformed into “a whole new thing.” Meanwhile, over at the poker table,…

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This Friday morning, die-hard Star Wars fans will awaken to a powerful force that hasn’t been felt in theaters for a decade – a new installment to the iconic franchise. For the seventh time, moviegoers will turn out in droves to watch Jedi knights, storm troopers, and all kinds of alien beings fight for galactic dominance. If history is any guide, the theaters will be filled with patrons sporting Darth Vader masks, Obi-Wan Kenobi beards, and even styling Princess Leia’s bagel-sized hair buns. Despite the anticipation, no long-time fan of the franchise goes into Friday without a healthy amount of trepidation. For while the first trilogy received rave reviews at the time and lives on in treasured popular memory (with a stunning Rotten Tomatoes average of 96%), the second (prequel) trilogy stumbled badly (with a middling Rotten Tomatoes average of…

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Later this month, we’ll be checking out of the grocery store, absently scanning the gift cards hanging by the conveyor belt. “Cheesecake Factory. Ruby Tuesday’s. Berkshire Hathaway. Wait … what?” But that gift card emblazoned with the moniker of an international conglomerate won’t just be in our imagination, though we’re usually driven to near delirium by the din of holiday shoppers and the insanity of repeated riffs on reindeer. Instead, it will be the work of a new company called Stockpile, which plans to uberize the giving of stocks by offering branded gift cards that represent fractional investments in public companies, funds that track the price of gold, and even fully hedged international real estate ETFs. Gift card recipients will have the option of converting to hundreds of other stocks if they doubt our pick – they will even be…

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Last Tuesday, the world lost a treasure. Yogi Berra was an outstanding human being, volunteering for the Navy at age eighteen and seeing action on D-Day, being married to his beloved Carmen sixty-five years until she passed in 2014, and devoting his later years to charitable ventures promoting respect, sportsmanship, and excellence. Berra was also a tremendous baseball player, with a record 10 World Series championships, 358 home runs coupled with an astonishingly low strike-out to at-bat ratio of 5%, and brilliant pitch-calling as a catcher (including the only no-hitter in World Series history, Don Larsen’s 1956 perfect game). Yet in a period known for its intense rivalry between Berra’s New York Yankees and the Brooklyn Trolley Dodgers, Yogi was almost universally beloved. In addition to his compelling rise from humble beginnings to stardom, he produced what Bruce Weber called…

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What a few weeks we’ve just lived through in the financial markets, with no shortage of turbulence, turmoil, and downright tribulation across the world. The S&P 500 tumbled more than one hundred points last week, a dubious distinction it had not achieved since the grim days of October 2008 – as of this writing, it’s fallen more than fifty points in a single morning. China’s yuan (partially) and Kazakhstan’s tenge (entirely) shifted to a freely floating currency from central management, causing the former to fall materially and the latter to plummet precipitously. A barrel of crude oil cost 32% less than it did at the outset of July. Against this backdrop of coordinated devaluating pressure, it’s no surprise that market volatility measures have jumped considerably. 2-year cap volatility, a measure of the cost of insuring against rising interest rates, has…

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