Scare stories are rampant, and the talking heads are all abuzz, but I just want to say one thing…
Welcome to the outside, Britain.
Your citizens have been treated like children, and marginalized for decades.
Threats from around the EU, and the globe, about what will happen to you were a dime a dozen.
And those making them had the gall to act as if they weren’t the ones who would inflict them upon you. As if punitive outcomes were a natural force, and not made by the powers that be.
The farcical commentaries and threats were ignored, and you chose to forge your own path.
I don’t know if it is going to be good or bad in the end, but I respect that you made the right choice for yourselves, and that is a whole lot more than can be said for most who are chiming in on your affairs.
Of course, it isn’t going to be easy going forward, but this is nowhere near the doomsday scenario that many claimed.
However, this does change things quite a bit, especially for investors on both sides of the Atlantic.
Tempest in a Teapot
The fact that the British have voted to leave the EU shouldn’t have been a surprise.
This is pushback against decades of policies that favor the select few at the expense of the masses.
Just like in most of the world, British citizens have been slowly bled for decades. Wages suffered, housing was impossible to buy, and rent became extortion.
Meanwhile, jobs disappeared and small towns have languished with nothing but service jobs and welfare checks for getting by day to day.
Veiled threats about what could happen only drew attention to the fact that these threats are no worse than what was already happening under policies the people were lied to about.
Jeremy Corbyn, leader of the opposition Labour Party, said voters were reacting to decades of mistreatment by successive governments, adding, “Many communities are fed up with cuts, fed up with economic dislocation and feel very angry at the way they’ve been betrayed and marginalized.”
Who could ever blame them for wanting to try something, anything, different?
Some members of the “Remain” camp worried that a Brexit would give the EU an incentive to keep other member states from carving their own path as well.
The fear is that Britain will be offered terrible terms for its exit, such as drastically limiting its access to the EU single market, as a warning to other states.
Quite frankly, many of those threats are completely overblown. Trade barriers will be enacted, some punitive from the EU itself, but hyper-efficient trade has already proven to benefit only a small, moneyed elite.
It will take two years of negotiations to even exit the EU. Though Brussels has warned that this decision would be permanent, European countries will continue to want British goods and investment.
There isn’t a sudden, Britain-shaped hole in the geographic and economic map. There is just a divergence where voters decided to drift away from the path chosen for them.
This is a tempest in a teapot, drawing attention away from all the existing existential challenges the EU and its member countries face.
What This Means Going Forward
There are some big political implications. Ireland and Scotland may break out of the UK due to how strong the “Remain” votes were, and how the desire to leave has grown over the years.
But for investors, particularly in the U.S., it doesn’t mean much beyond the continuation of the status quo.
Avoid the slippery slope mentality. Nothing is moving fast because of this.
The roughly 3% drop in the S&P 500 put it back to where it was in mid-May, and it’ll probably be erased within a month as institutional investors continue to buy on bad news.
This is just a reminder that the U.S. stock market is just about the only one worth investing in, and more international money will flow in.
The dollar will still remain strong, especially against the British pound. The Fed will probably cave to cheap debt-drunk corporate interests and avoid a rate hike, yet again.
Share buybacks will continue to offset the wealth extraction feeding the increasing divide between the haves and the have-nots.
Volatility will stay around for a bit, then drift down to the same historic lows that have marked the post-Great Recession market.
Negative interest rates will remain, and maybe deepen, but the Brexit will just be a scapegoat for issues that already existed.
Bonds will be bid up, driving yields down. Risk will be hidden by demand, and will not match the reward.
And gold will continue to climb, making the gold miners who have survived the lean years that much more attractive.
