The probability of Brexit is not 100%

Outlook:

The Brexit story is going to change course a dozen times over the next few months. The eventual outcome is by no means clear. And make no mistake—Cameron is still in the driver's seat. As noted above, the Brexit leaders, including Bad-Hair Boris, were as surprised as anyone about the outcome and seem to have no plan at all.

Cameron will address a regular EU summit tomorrow in Brussels and on Wednesday, the 27 members will meet without Cameron. If Brexit goes according to schedule, the new UK PM would submit Article 50 on Nov 1 and negotiations would have to be completed by Oct. 31, 2018. (Europeans wouldn't like talks to drag on until the European Parliament elections in May 2019.) The legal date for departure could therefore be set for Jan. 1, 2019, 46 years to the day after the U.K. joined.

The probability of Brexit is not 100%. Parliament has to ratify the referendum and the new PM has to invoke Article 50. It will not be an easy path to both events. It's not inconceivable that Britain will change its mind and that Europe will let it. For that to happen, two big changes need to get made and both are political. We see two key failures:

1. Economists failed to convince voters that Brexit would be very, very bad economically/financially for the voter. The more powerful argument was nationalism, sometimes erroneously named "sovereignty." Economics vs. politics is always apples vs. oranges or rather, apples vs. football. But economists failed, all the same. Shockingly, the Leave campaign dismissed the views of experts, including the UK Treasury and IMF, all of whom predicted dire economic consequences of Brexit. "We don't need no stinking experts." Experts are, by definition, elite.

2. The EU failed to manage the Syrian refugee crisis. Syrians were not actually an immediate threat to Britain, but the voters perceived the EU would force the UK to take (and pay for) hundreds of thousands. The cynical poster showing an endless queue of Syrian refugees and UKIP Leave leader Farage was actually taken in Slovenia, but made the point well that the EU's massive bungling of the Syrian refugee crisis could end up costing the average UK voter in terms of higher taxes, lower wages and even more crowded health and educational services.

Other items of note:

• Many who voted to Leave now regret their vote and would take it back if they could. As of late Sunday, over 3.3 million persons had signed a petition asking for another referendum. This is about 10% of the 33 million who voted and 19% of the 17.4 million who voted to leave. The FT's Stephens opines that Parliament would need more than a petition to overturn a democratically determined decision.

• It was voters over 50, the less well-educated and non-Londoners who dominated the Leave vote.
  These are standard grass-roots Labour party members and Labour leader Corbyn is under fire for half-hearted support of Stay. As of Sunday, 11 of 30 in the Corbyn shadow cabinet had resigned and his party leadership may hang on a vote of confidence this week.

• European leaders like Merkel and EC President Juncker have said they want s speedy exit, but many obstacles stand in the way of any exit at all, including the wait until October for Cameron to leave after resigning and the requirement that Parliament approve the referendum result. Parliaments don't like to decide against democratically approved initiatives, so they will probably decline to overturn the result. Probably of greater concern is the Scottish Parliament withholding consent, which it may, legally, be allowed to do. First Minister Sturgeon says Scotland will hold another referendum on independence from the UK if Brexit does proceed.

• A central issue is populist anger at a remote and unresponsive elites in government in London as well as Brussels. Equally important is a xenophobic nationalism—take back our borders. Sound familiar? Comparisons with Trump are not wrong, but there are two big differences. First, as former PM Blair notes, the US does not face the specter of nearly a million Syrian refuges at the border. Technically, the UK did not, either, but a sufficient number of Britons were just fed up to the eyeballs with the EU perceived as dictating immigration. Trump has aroused the same antiimmigrant emotion in the US as the Leave camp managed in the UK, but in a less-urgent environment, and one where many of those immigrants can vote.

Second, the Trump demographic is not likely to reach a majority of voters--white males, who are 31% of the population. Subtract the well-educated and the younger, and it's less. Let's say 20%. Trump will not be able to change his stripes in the 130-odd days to the election to gain sufficient traction among women, Hispanics, and blacks, where his unpopularity reading is extremely high. But if we learned one thing from Brexit, it's that polls can be misleading.

It will be interesting to see how the British press and British public respond to the lies, half-truths and misrepresentations of the Leave group compared to the lies, half-truths and misrepresentations of the Trump campaign.

Another thing we confirmed over a weekend of Brexit is that UK politicians are a whole lot smarter than US politicians. Former leader Milliband, for example, did yeoman duty on US TV. We sometimes get our TV entertainment from C-Span's "Question Time," when the always beleaguered PM faces the House. It's a snake-pit! Obama would probably do okay in that environment but the Speaker of our House and Senate leader would get shredded.

• The Independent newspaper has a clever story on how Cameron beat Boris Johnson and other Brexiteers—by not invoking Article 50 right away and pushing it off on the next PM, he has ruined the political scene. "Boris Johnson knew this yesterday, when he emerged subdued from his home and was even more subdued at the press conference. He has been out-manoeuvred and check-mated.

"If he runs for leadership of the party, and then fails to follow through on triggering Article 50, then he is finished. If he does not run and effectively abandons the field, then he is finished. If he runs, wins and pulls the UK out of the EU, then it will all be over - Scotland will break away, there will be upheaval in Ireland, a recession ... broken trade agreements. Then he is also finished. Boris Johnson knows all of this. When he acts like the dumb blond it is just that: an act. "The Brexit leaders now have a result that they cannot use. For them, leadership of the Tory party has become a poison chalice."

"All that remains is for someone to have the guts to stand up and say that Brexit is unachieva ble in reality without an enormous amount of pain and destruction, that cannot be borne. And David Cameron has put the onus of making that statement on the heads of the people who led the Brexit campaign."

Hmm, an interesting theory. Cameron's legacy may not be total ruin, after all.

Brexit will be with us for a long time. So will China. Remember China? On Friday (July 1), we get both the official PMI and the private Markit/Caixin PMI. The official PMI is forecast to drop to 50.0 from 50.1 in May, right on the boom-bust dividing line, according to the Reuters survey. "China's manufacturing activity had expanded for three consecutive months from March to May, after seven months of prolonged contraction, fuelling hopes that government attempts to stimulate the economy were gaining traction." The Caixin is expected to dip to 49.1 from 49.2 in Mat. It will be the 16th straight month of contraction. For what it's worth, GDP is released on July 15—an eon away. What happens to the AUD?

Some analysts cast an eye now and again on the Fed. The consensus of opinion seems to be that while Brexit is not a Lehman moment, it's a Big Deal and the Committee will hold fire come September. That leaves December. We can still be dollar buyers for the foreseeable future.

Note to Readers: Next Monday is a national holiday in the US (Independence Day) and markets will be closed. There will be no reports. Markets close early on Friday, July 1.