How the Brexit Doomsday Prognosticators Have Changed Their Tunes

Several noted fund managers have performed well in the aftermath of the U.K.'s decision to leave the EU despite predicting panic and collapsing markets.
By Laura Berman ,

The U.K.'s vote on June 23 to leave the European Union had immediate consequences, including a sinking pound and political turmoil.

But U.S.-based investors who warned of apocalyptic losses have changed their tunes as the S&P 500 and Dow Jones Industrial Average, despite taking a sharp tumble after the vote, have rebounded, overtaking their pre-Brexit levels.

Among the most spooked by the specter of Brexit was Alan Greenspan. The former Federal Reserve chairman said in a June 27 interview with Bloomberg that allowing a vote was a "terrible mistake," while the resulting vote to leave was a "terrible outcome in all respects" and would probably galvanize independence votes in Scotland and Northern Ireland.

"I don't know how it's going to resolve, but there's going to be a crisis," he predicted, implying that a similar crisis was imminent in the United States unless the government launches entitlement reform. "This is what the election should be all about in the United States," he added.

Greenspan hasn't commented on the apparent recovery. George Soros, by contrast, has brightened his doom-and-gloom forecast considerably.

While prior to the vote he wrote that a Brexit scenario would leave "most voters considerably poorer," he softened his position in a July 8 article. Indeed, he's no longer convinced that the U.K. will leave the EU at all.

"As the initial shock of the British referendum wears off, something unexpected is happening: the tragedy no longer looks like a fait accompli," the investor wrote. "Many British voters have started to feel a degree of 'buyer's remorse' as the hypothetical becomes real," with more than 4 million Britons supporting a petition for a second referendum.

The vote, Soros asserted, will also change the EU for the better.

"The post-referendum turmoil has highlighted for people in Britain just what they stand to lose by leaving the EU," he added. "If this sentiment spreads to the rest of Europe, what seemed like the inevitable disintegration of the EU could be instead creating positive momentum for a stronger and better Europe."

Noted bond investor Jeffrey Gundlach, who admitted he never thought Brexit would happen, disagrees with Soros, arguing that calling another vote would be a mistake.

"The worst thing that could happen would be for the establishment to say we're not leaving," he told Barron's in an interview this weekend. "The people said leave. A vote is a vote. ... Do you keep voting until you finally get what you want?"

He predicted "riots" if Britain does not leave the EU: "If you say that doesn't count, that gets people who are already angry infuriated."

Despite his initial disbelief, Gundlach almost certainly made a tidy profit from Brexit. He told Reuters that he sold his entire European stock portfolio on June 23 before the votes were tabulated. Markets had rallied that week as a Remain vote was expected.

His firm, DoubleLine, said in a statement that it would "continue to emphasize capital protection while looking to take advantage of dislocations in select markets, including in the aftermath of the Brexit vote as Brussels and London implement Britain's Independence Day."

Soros protege Stanley Druckenmiller's Duquesne Family Office seems to have also done well from the referendum, reportedly loading up on gold futures before the vote. Post-referendum, gold soared to two-year highs as investors fled equities for safer assets. Druckenmiller told CNBC's Andrew Ross Sorkin in an email that he thought the vote was "great."

A notable voice of reason was TheStreet's own Jim Cramer. He called Brexit the "dumbest financial mistake I can ever recall," but advised investors to ride out the uncertainty. The post-Brexit turmoil, he added, is "certainly not an opportunity to sell; that would be a big mistake."

Investors across the pond, unsurprisingly, are considerably more spooked. This week, for instance, six different fund managers have halted redemptions in U.K. property funds, freezing billions of pounds of assets.

One of the fund managers, Columbia Threadneedle, said in a statement that because redemption requests would "continue for the time being due to uncertainty in the market following the U.K. Referendum result," suspending trading "allows sufficient time for the orderly sale of assets, and protects the interests of all investors."

Similarly, Henderson Global Investors said that it made its decision "due to exceptional liquidity pressures on the funds, as a result of uncertainty following the EU Referendum and the recent suspension of other direct property funds."

See full coverage of the Brexit debate here.

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