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On Friday, the UK decided to not only screw itself over, but also everyone else by voting themselves out of the EU. As a result a record $2.1 TRILLION of market value evaporated in a single day. It was the single largest equity rout in history, eclipsing even the day that Lehman Brothers collapsed.
The effect on those living in the UK was almost immediate. The Pound Sterling experienced its largest one-day drop in recorded history (with no bottom in sight), immediately making everyone in the country 7% poorer. 100,000 jobs are estimated to go poof, as banks move positions out of the City (their version of Wall Street), and into more stable EU countries like Germany and France. The housing market has already frozen up, as panicked buyers are running for the perfectly manicured rolling British hills. And bankers are now saying a recession in the UK is a “near certainty.”
Here’s why all this will ultimately end up saving the UK.
First of all, let me say that as much fun as the news has been, I’m not planning on doing any trading at all during this crisis. If markets continue to plummet to a point that my asset allocations go out of whack, I may rebalance but that’s it. This is not the end of the world, and as long as nobody nukes anyone else, all this is just noise in humanity’s near-continuous march towards prosperity. Things will work themselves out eventually.
But I do think that things will work themselves out a lot sooner than people think, and that ultimately despite the referendum, Brexit won’t actually come to pass.
That’s a bold statement, I know, especially in the face of the hundreds of pundits, reporters, and politicians running around like their hair’s on fire. Why would I, some lowly blogger, think that I know better?
Because there’s one major distinction between this crisis and every other crisis that everyone seems to be missing for some reason.
In nearly every other crisis, the pattern goes: Something bad happens, then there’s a long painful aftermath. For example, Russia invades the Ukraine, and the Ukrainian economy falls apart. Or Lehman Brothers collapses, sparking a recession.
In all of those cases, once the painful repercussions start getting felt, it’s too late to reverse the thing that caused it.
Brexit is different. People seem to think that the Brexit vote means that the UK is definitely leaving the EU. It doesn’t. It’s not even legally binding. It’s simply a message from the voting public to their elected officials. The actual event that causes the UK to leave the EU is the UK PM triggering what’s called Article 50 in the Lisbon Treaty that governs the EU. Outgoing PM David Cameron, the defacto leader of the Stay campaign, has resigned, and, disgusted with the result of the referendum, has left it to his successor to actually trigger the UK’s exit.
Why is this important? Because people are feeling the misery NOW, before the eject button has actually been pushed.
It will take 3-6 months before Cameron’s successor is known. And in that time, the entire population of the UK will be feeling the hurt. 3-6 months of job losses and a plunging stock market would make anyone rethink their decision. There’s already a growing body of anecdotal evidence that the Leave voters didn’t fully understand just what in the Hell they were doing, considering that the two most searched terms in Google following the Brexit vote in the UK were “What does it mean to leave the EU?” and “What is the EU?”
And if that wasn’t enough, the UK is now facing the unprecedented possibility of their own country breaking up for good. While large swaths of the English countryside and Wales voted to leave, London (and surrounding cities), Scotland, and Northern Ireland voted to stay. Now faced with the prospect of being involuntarily dragged out of the EU, Scotland is now threatening to secede, and Northern Ireland is now threatening to split as well and join the Rebulic of Ireland. Even the city of LONDON wants to jump ship and become its own independent city-state.
If you think about it, that’s fucking INSANE.
Not even HITLER could screw over the UK that badly, and here the UK just up and did it to themselves. If Brexit actually goes through and all these secession efforts succeed, the once-mighty British Empire will be reduced to an area roughly the size of my desk.
So whenever the new leader takes over the government, they will be faced with the choice of pushing a big red button that he knows will destroy his own country, while his citizens, his fellow lawmakers, and ghosts of every British monarch past will be screaming at him not to do it. And at that point, he (or she) will likely be scrambling for political cover NOT to do it.
There are already clues as to how this will pass. Already, there signs that the MPs at Westminster, who overwhelmingly support staying with the EU may block any legislation on Brexit. And the Liberal Democrats are preparing to frame the next general election as a 2nd referendum on Brexit (which would happen in the likely event that a non-confidence vote brings down the current Tory majority).
So despite all the news articles out there declaring that Brexit was pretty much a done deal, I don’t actually think it is. The British people will go through an intense period of short-term economic pain, and I think that will cause enough Leave voters who didn’t actually know what they were voting for to switch sides.
What do you guys think? Do you think Brexit will actually go through?
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All very good points. I think you’re probably right. Perhaps Brexit was the last good buying opportunity for the S&P 500 for some time…
It has exacerbated the bond bubble however.
Yup. That’s why stocks are rallying now. Smart investors are looking for good deals.
As a Brit living in Canada I’ve been following Brexit very closely since the referendum was announced. I am also in the minority as a millennial who voted leave.
Your past two blogs have been the same as pretty much all the media coverage outside of the UK. Basically, “What have they done?! What a bunch of idiots!” It’s frustrating reading these articles as I feel anyone outside of the UK has no idea what they’re talking about other than what they are seeing (pound falling etc.)
Everybody knew that if Leave actually own, there would be an immediate and exaggerated reaction. The stock market would fall and the pound would go with it. Threats of jobs leaving and economic uncertainty would follow and political instability would be drastic. This isn’t news, this isn’t a surprise. It’s not even an “I told you so” moment for Remain. We knew this would happen and we know we have to stay strong through this storm in order to come out the other side.
And we are already coming out. You keep saying how the stock market has been crushed. You do realize the FTSE 100 actually just closed HIGHER than it was before the vote? (http://www.bbc.com/news/business-36660133) The pound is currently surging every day. People are realizing this isn’t such a sh!t storm after all. The economy is not doomed and Britain is still there, as strong as ever.
Sure, there is a lot of uncertainty in the air and who knows what will happen? I for one think the UK will be fine if they leave the EU. We’re a powerful nation with one of the largest economies on the planet. The world won’t just turn it’s back to that. Most of Europe is reliant on trading with the UK, especially the likes of Germany whose car industry would be decimated if they started putting tariffs on trading with the UK. 34% of Germany’s net surplus from trading with the EU came from the UK. The UK is Germany’s 3rd largest exporter at 89 billion euros. You think they’ll just say goodbye to that? Will they hell.
As for people not knowing what they voted for, what a load of tosh! We knew exactly what we voted for and what to expect if it happened. Some Google analytics is hardly evidence to the contrary.
Also “your” theory that we won’t leave the EU is a theory that has been prominent on social media for days. A lot of people have been speculating this and unfortunately I think it is accurate. Sadly, it will take years of uncertainty and scaremongering before we realize the benefits of leaving the EU and I don’t think the government is strong enough to ride out this storm. I don’t think we will leave the EU because the next PM, even if it is Boris Johnson, won’t have to stones to actually push the button. However, the consequences that will have on the UK will be staggering. How can a democratic country put the middle finger up to a democratic referendum? There will be massive civil unrest if it doesn’t happen and it’ll be interesting to see how that one pans out.
Well of course YOU’RE sitting pretty, you’re living in Canada but you voted Leave over the post! You have the luxury of riding the stock market chaos out because you’re watching it from a distance, just like I am. It’s pretty great, isn’t it?
But the people actually over there who are watching their jobs evaporate and their houses plummet in value have a very different experience, I’m sure. I don’t need to physically BE there to know that, because I’d be scared shitless if that were happening to me.
Some Leavers will get cold feet and flip to Remain, but NO Remainers will look around and say “this is awesome!” and flip to Leave. You don’t need many to jump to flip the result, just 1-2%, and odds aren’t good that spread will remain if the UK gets polled again.
See this is what I mean. Jobs have not evaporated and house prices have not plummeted. If anything the housing market is roaring as overseas buyers are flooding into London as the pound weakens (http://www.independent.co.uk/news/business/news/london-property-house-prices-brexit-overseas-buyers-first-time-eu-referendum-housing-market-a7108026.html).
What are you basing your information on? You’re the same as every other media outlet out there, causing panic and hysteria from speculation and rumor.
There is nothing to be “scared shitless” about, no jobs have left and house prices haven’t fallen. Your only source of this speculated 18% house price drop was from George f’ing Osborne! This was said prior to the referendum to scare people into voting remain. I don’t suspect you know this as you probably only started listening once the vote was already in (as with most of the worldwide media). You probably don’t even know who he is but arguably he is the reason the Remain campaign lost! All he did was spout complete lies throughout the campaign of the impact of leaving the EU, which people saw right through and motivated them to, in fact, vote leave. Here: http://www.independent.co.uk/voices/george-osborne-is-trying-to-bully-the-nation-into-voting-remain-a7083996.html. People are calling for his head now and I wouldn’t be surprised if he gets fired.
And the UK will not get polled again are you having a laugh? Any leavers flipping to remain now are too late. It’s over. Done. They had their chance.
The only thing that will stop this is the government downright refusing to exit the EU. There will not be another referendum.
“Estate agents in the UK have been swamped with calls from Chinese, Middle Eastern, Italian and Spanish buyers looking for a bargain..”
Bwahahaha! I thought the whole point of Brexit was to keep the foreigners OUT. Are going to have a Brexit from the Brexit?
This article was BS when it was written and remains BS today when I read it for the first time. Your reply (“I thought the whole point of Brexit was to keep the foreigners OUT. “) proves that you have absolutely no idea of the underlying issues surrounding Brexit and have just listened to media noise.
Britain voted Brexit primarily to regain sovereignty thus removing ultimate political authority from an unelected third party, and secondly to control its own borders.
This does not mean that Britain wants to keep foreigners out, it means it wants to have sovereign control over who can enter the country in order to promote the country’s best interests (just like the USA, Australia or any reasonable country not part of an undemocratic dictatorship).
I know this post won’t change your ingrained, uninformed and bigoted views but maybe having 3 Brits reply to this post, all of them telling you how wrong you are may at least cause you to reflect. Please don’t think that reading The Guardian makes you an expert in British politics.
I see Godwin’s Law has been reached.
We had a good run.
Eh, don’t beat yourself up about it. I’m sure we haven’t seen the last of Brexit volatility…
There’s a middle ground, since there are already countries that act like they’re part of the EU in one way or another (Iceland, Switzerland, etc.) but aren’t technically part of the EU.
https://www.youtube.com/watch?v=O37yJBFRrfg
I suspect that a ‘toothless exit’ might get nearly all the benefits of being in the EU, without any of the material pain you’d get from actually exiting.
Who knows? The Brits have no idea who’s even going to run their country at this point: http://www.telegraph.co.uk/news/2016/06/30/boris-johnson-wont-run-for-prime-minister-after-michael-gove-ent/
I feel yah. I bought some on Friday in my Rollover IRA, but didn’t continue on Monday. Bought I did buy both Friday and Monday in my SEP IRA and Solo 401k.
It’s funny, cuz I wanted to buy this Range Rover post Brexit. But the dealer wouldn’t budget much on price. So instead of spending the $66,500 they wanted, I just bought $66,500 worth of European and US equities instead plus another $8,500 in a European bank stock that crushed for good measure.
If you don’t want my money, I’ll give it to you guys anyway! I updated my posts with what I bought.
Sam
HA! That’s hilarious. “Well FINE! I’ll just use this money to make even more money instead!” Idiots.
Let’s just hope within six months the stock market doesn’t tank and I regret investing and saying “Why didn’t you sell me that Range Rover! I couldn’t enjoyed my money instead!” haha.
You just never know. Leg in. Keep some cash. Spread things around.
I want to see brexit stopped, failing that I want to see britain fall on its face. It has taken 30 years to realize i have been living in a fundamentally fascist state. I want out of this now
Wow, you are so wrong about this! And yet so certain you are right – despite not even being British haha! Your arrogance (and misjudgement) has totally turned me off your blog – you have shown yourself to be young, over-confident and ill-informed. I won’t be supporting you any more (Brit here).
Oh no, whatever will we do? A random internet stranger is offended?! Shocking! Guess I’ll have to placate myself by going back to my awesome retired, world-travelling life. So sad. #SorrynotSorry #GoodRiddance.
No, not offended, that’s kind of a millennial thing to say 😉
Just realised you were not half as clever/wise as I’d previously thought reading some of your blog posts. No biggie. You’re right: it totally doesn’t matter what I think, nor what you think, either; just surprised how wrong you are with this. I will seek out other people with more interesting views henceforth.
Thanks for reading
I’d love to hear your thoughts about this today.