Brexit: Disaster, Annoyance, or Opportunity?
In summary, we believe, and have been vocal about this for some time, that the effects of the Brexit will be far less substantial than the news media and the European banks are suggesting.
Dear Clients & Friends,
In light of UK’s decision to leave the European Union, we are postponing this weekend’s reading so that we may make a few comments on this topic. They will be brief, and we see opportunity abound.
In summary, we believe, and have been vocal about this for some time, that the effects of the Brexit will be far less substantial than the news media and the European banks are suggesting. Without getting too deep into the specifics that mostly relate to uncharted economic theory, we can discuss a few items which do not require any economic or financial expertise:
Even though the UK is in the European Union, it does not and never has used the Eurodollar.
In order for the UK to do business with the Eurozone, they will still have to abide by many of the Eurozone rules. So in many industries, little will change.
The European Union is only 18 years old.The UK is 309 years old.And if you consider Brythonic Britain and Gaelic Ireland, this land is 1,973 years old.It’s intriguing to me that European banks think that leaving the Eurozone after such a brief period in UK History can spell disaster for the global economy for generations to come.
The vote is not legally binding yet.
The process of departure will take months, possibly years to define.So any real effect of this “leave” other than the investment market’s reaction, is totally unknown.
In addition, while we live in a modern global economy, local issues have more of an effect on the local economy and currency.
“The U.K. accounts for less than 3 percent of S&P 500 revenues, meaning any direct impact to corporate earnings should be limited. Europe makes up a larger percentage, but as noted, the effects there are likely to be smaller as well. The real impacts will be indirect. The dollar, for example, is strengthening as I write this, which will continue to hurt U.S. exports. At the same time, however, it is still within the recent range, which means very little may actually change.
Most investors are interested in their long-term goals. If you are a trader, short-term results are paramount, and you’d better already have your bets in place! For longer-term investors, though, the immediate reaction is less relevant, as we have seen over and over again.
At the moment, the only thing that's really changed is an increase in uncertainty. Although the U.K. has indeed voted to leave, we don’t know what that means yet, and markets are trading on fear of the worst case. Britain has already announced that it does not plan to start the exit process for some months yet, and it remains in the EU until that process is complete.
Even though everything has changed, nothing has actually changed yet. As they start to realize how long the process is likely to take, markets should gradually settle down into a new normal, as they always do.”*
Y2K was supposed to be the end of the world. So was 2008’s financial meltdown, and the 2011 debt ceiling debate. None resulted in the end of the world as we know it, but they all have one thing in common: The Dow Jones Industrial Average and the S&P 500 were both higher yesterday than they were prior to any of the above mentioned crisis. And this, as some of you probably expected, is the focal point of today’s message- the market chaos is not alarming to us. Our attention is now focused on the possibility of yet another great buying opportunity.
There is a great divide today between bank-side analysts and the independent channel analysts. From our reading, we see most bank side analysts yelling about the end of the word, while the independent analysts are yelling about the opportunity provided to long term investors. Regardless, we can certainly expect massive volatility in both the investment markets as well as the currency markets. Poorly disciplined investors who throw in the towel may struggle in this environment. Prudent, patient, and long term investors may savor the opportunity. We’ll be watching over the next few days for such an opportunity. We’ll keep everyone posted.
With that said, enjoy the weekend knowing that we may have a good opportunity as long as we don’t miss the forest through trees. And as we always say, call in with any questions you may have.
Matthew Ramer, AIF® Principal, Financial Advisor MOR Wealth Management, LLC
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