Ah, the crazy Brits…they’re always up to something that’s bound to cause a stir. Whether it’s voting for Scottish independence (2014) or voting on the United Kingdom (UK) leaving the European Union (EU) (this year). One thing I do admire about the system of government in the UK is how they put they major policy questions directly to the citizens for a vote (even if the referendum was non-binding)
With that in mind, I wanted to share some thoughts on Brexit…
Like the majority of the rest of the world, I was quite surprised when the majority of the votes came in favor of leaving the EU. I do think that the British people are making an ill-informed decision or a decision that they are bound to regret in the years to come. There’s many things that the British government will have to do such as re-issuing passports, review current laws that were passed for EU regulatory purposes, negotiate a new trade agreement with EU, determine the status of EU citizens in Britain and British citizens living in the EU, and the list goes on and on! One other thing for consideration is that by leaving the EU, it may also force the break up of the UK. Every single county in Scotland voted to remain in the EU. Also, Northern Ireland is exploring its options to keep trade and borders open with Ireland. It’s no wonder Prime Minister Cameron is letting the next PM activate article 50 of the Lisbon Treaty that allows the 2 year clock on leaving the EU to begin ;).
I also think that the U.S. markets are overreacting. The markets in the U.S. have dropped almost 1,000 points from last Thursday’s close due to the “global uncertainty” associated with Britain leaving the EU. In fairness, Britain is the world’s 5th largest economy, however, a lot can and will happen if Britain decided to declare under article 50 that they are leaving the EU. What this overreaction presents for me is opportunities to buy stock at discounted prices! I only wish I had more cash to take advantage of the price drop. It’s like I was explaining to one of my co-workers today, our company is not materially worth less the today because the British people voted to leave the EU. I’m also a believer that this price drop in the market will eventually recover.
From a selfish standpoint, now is a great time to travel to Britain as the exchange rate has gotten much more favorable for the U.S. dollar. Additionally, if you’re buying a house in the next 30 days or so, you may be able to lock in a lower interest rate as there as been a significant surge in buying 10 year U.S. Treasury bonds. This has caused the yield on the bonds to decrease and because mortgages are closely tied to the 10 year Treasury yield, interests are lower.
It will be interesting to see how the vote to leave the EU plays out. There has been talk in Britain of voters not understanding what they were voting for, a petition calling for another vote on leaving the EU, and leaders of the “Leave” campaign walking back on their pledges on what happens and how certain programs would be funded if the “Leave” vote won.
Leaving the EU will be a complex affair with lots to consider for Great Britain and its (former) EU partners. There is much to discuss if and when Britain declares that it’s leaving. So far the biggest losers of the vote to the leave the EU have been the British citizens with the pound losing its value, markets in turmoil, and the potential for Scotland to leave the UK.
I’ll leave you with one thing to ponder…
Given that the vote on last Thursday was non-binding for the British Parliament and the complexities behind actually leaving the EU, will the British actually leave or will this end up being bluster that will end up causing a lot of anxiety and costing people a lot of money? As for me, while everyone is panicking about the uncertainty and trying to figure out what to sell, I’ll be happily buying cheap stock!
If you’re interested in reading more about “Brexit”, I encourage you to consult the following links:
- Financial Times Brexit Articles
- Could the UK hold another Brexit Vote?
- CNN UK Referendum Coverage Page
- The UK’s EU referendum: All you need to know (BBC)
- Overwhelmed by ‘Brexit’? Here Are the Basics (NYTimes)