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After Lehman Brothers fell over in September 2008, equities slumped, then rallied back to their previous levels within a week. Brexit isn’t Lehman, but the stock market is behaving similarly. The S&P 500 remains a little lower than it was immediately prior to the British vote to leave the European Union, but it has also snapped back.

Is this the right reaction to Brexit?

The lesson from unexpected failures is that due to the interconnectedness of trading world-wide, an unexpected result can place market participants on the wrong end of a trade.

Other traders will hold either that same trade, or a similar trade that can be impacted by the former.

The problem is increased and becomes unstable with how much leverage is contained in those trades. Zero leverage, then no-one is forced to sell and prices remain less volatile. Lots of leverage equals forced selling, which puts downward pressure on prices, an increase in volatility, which can [will] force additional selling….and so on.

Add in the problem of ‘liquidity’ and then you have a real problem.

Liquidity always…..always disappears just when you need it. If you also have fairly illiquid investments, then the problem is magnified.

How much leverage is in the system?

Depends on the strategies being pursued. Strategies, convergence strategies tend to use a lot of leverage and are especially prone to exogenous shocks, such as Brexit. Fixed income tends to be most conducive to convergence strategies. Look for spreads widening between Treasuries and Corporates. Spreads that continue to widen…suggest too high of a leverage in the system.

Banks usually provide the loans [finance] that leverages the system. Italian banks are under pressure by all accounts currently.

Bank customers most likely to crash the system….hedge funds, who have over leveraged.

For the fall out from Brexit, it is still early days yet. Maybe nothing of any consequence will occur, but then again, a significant number of major players were leaning the wrong way.

In the UK…which is a liquidity issue

A gigantic property fund is stopping people taking out money out for the first time since the credit crisis of 2008.

Savings and investment giant Standard Life froze withdrawals from its £2.9 billion ($3.8 billion) UK real estate fund after a flood of people tried to pull money out in the wake of the Brexit vote.

The Scottish-headquartered company suspended trade of the fund on Monday, blaming “exceptional market circumstances,” according to a statement emailed to Business Insider.

Standard Life says: “The decision was taken following an increase in redemption requests as a result of uncertainty for the UK commercial real estate market following the EU referendum result.”

Most funds will keep at least some of their holdings in cash so they can repay investors who wish to take their money out at any time. But Standard Life’s decision suggests this buffer has been overwhelmed. Property takes a relatively long time to sell so Standard Life is unable to quickly meet demands by simply selling off its investments. If it has to sell off a lot, that also means it could get a bad deal as it is in a hurry to offload.

Standard Life says in its statement:

“Unlike investing in equities, the selling process for real estate can be lengthy as the fund manager needs to offer assets for sale, find prospective buyers, secure the best price and complete the legal transaction. Unless this selling process is controlled, there is a risk that the fund manager will not achieve the best deal for investors in the fund, including those who intend to remain invested over the medium to long term.”

Standard Life, which has over 4 million customers worldwide, says the freeze is “to protect the interests of all investors in the fund” and will end “as soon as practicable.” The freeze lets it work on getting more money and stops investors panicking as at least they know where they stand.

‘2016 is shaping up to be a rerun of 2007’

It is the first time Standard Life or any other UK property fund has stopped investors withdrawing cash from a fund since the 2008 financial crisis and its aftermath, the BBC reports.

Investment bank Jefferies writes in a note to clients on Tuesday that while this year is unlikely to bring a re-run of the 2008 financial crisis for banks, “2016 is shaping up to be a rerun of 2007, with real estate open-ended funds having switched from monthly to weekly valuations and cut pricing by -5% last week given the uncertainty of real estate valuation since the Brexit vote.”

Jefferies’ Mike Prew and team warn that not only do Standard Life and other funds face a sellers market and a liquidity crunch, people also just don’t know how to value property in the uncertain post-Brexit world.

Prew and his team write:

“No one knows how this phony war in real estate markets will end up, but valuers are not inserting an ‘uncertainty clause’, instead adding a lower level of caveat with an ‘advisory note’. Brexit has affected the real estate market but there is no transactional evidence that the UK’s valuation methodology can rely on. The likelihood is a one-off Article 50 devaluation when enacted, but it could be delayed until 2017, and the market is left with the high-water valuation mark. Until then, there is no certainty of commercial property valuations.”

Put simply, until Britain agrees its new relationship with the EU, people don’t know how much an office block in Aldgate should cost.

The UK’s commercial property market, which the Standard Life fund is involved in, has been one of the quickest to take a hit from Britain’s decision to exit the European Union. The Financial Times reports that London property deals worth £650 million ($856.3 million) have collapsed in the wake of the Brexit vote two weeks ago.

Other commercial property funds have also been writing down the value of their investments in the wake of the Brexit vote — in effect saying the building they own aren’t worth as much as they were a few weeks ago now that Britain is on course to leave the European Union.

Aberdeen Property Trust has written off £128 million of value, the Telegraph reports, whileHenderson’s UK property fund wrote off £160 million of value last week.