What Britain Leaving the EU Means

What Britain Leaving The EU Means

The EU (European Union) was established following the end of WW II in order to offer financial and structural stability for European countries. Since its establishment, the EU has grown to a membership of 28 countries, abiding by various rules and policies set forth by the EU Council.

One of the responsibilities of member EU countries is to accept and honor immigrants and citizens from other EU countries as part of the human rights initiatives recognized by the EU. Immigration has been a topic of contention among various EU countries for sometime. This was a decisive factor for Britain leaving the EU since its economy and cities have been inundated by foreign-born immigrants seeking jobs and a better quality of life.500 euro note image

The markets have reacted negatively to the announcement, pushing down stocks, the British pound, and bond yields as investors seek the perceived stability of bonds as markets worldwide acclimate.

Since Britain has been part of the EU since 1973, it is expected that the unraveling of British ties from the EU could take years. Contracts, employees, and laws will all have to be revised, reshuffled, and rewritten in order to accommodate the divorce between the two.

Now that the British have decided on leaving the EU, many believe that another referendum could possibly be presented in France and other EU countries. The concern of a domino affect is very realistic, as several other EU members are experiencing similar frustrations as Britain.

Expected effects in the U.S. include:

Sources: EuroStat, EU Council, Europa.eu

Welcome to Brexit

Welcome to Brexit (by Bob Veres)

Thursday’s vote by the British electorate to end its 43-year membership in the European Union seems to have taken just about everybody by surprise, but the aftermath could not have been more predictable. The uncertainty of how, exactly, Europe and Britain will manage a complex divorce over the coming decade sent global markets reeling. London’s blue chip index, the Financial Times Stock Exchange 100, lost 4.4% of its value in one day, while Germany’s DAX market lost more than 7%. The British pound sterling is getting crushed (down 14% against the yen, 10% against the dollar).

Compared to the global markets, the reaction among traders on U.S. exchanges seems muted; down roughly 3% as you read this, though nobody knows if that’s the extent of the fall or just the beginning.

The important thing to understand is that the current market disruptions represent an emotional roller coaster, an immediate panic reaction to what is likely to be a very long-term, drawn out, ultimately graceful accommodation between the UK and Europe. German companies are certainly not 7% less valuable today than they were before the vote, and the pound sterling is certainly not suddenly a second-rate currency. When the dust settles, people will see that this panicky Brexit aftermath was a buying opportunity, rather than a time to sell. People who sell will realize they were suckered once again by panic masquerading as an assessment of real damage to the companies they’ve invested in.

What happens next for Britain and its former partners on the continent? Let’s start with what will NOT happen. Unlike other European nations, Britain will not have to start printing a new currency. When the UK entered the EU, it chose to retain the British pound’that that, of course, will continue. Stores and businesses will continue accepting euros.

On the trade and regulatory side, the actual split is still years away. One of the things you might not be hearing in the breathless coverage in the press is that the British electorate’s vote is actually not legally binding. It will not be until and unless the British government formally notifies the European Union of its intention to leave under Article 50 of the Treaty of Lisbon – known as the “exit clause.” If that happens, Article 50 sets forth a two-year period of negotiations between the exiting country and the remaining union. Since British Prime Minister David Cameron has officially resigned his post and called for a new election, that clock probably won’t start ticking until the British people decide on their next leader. For the foreseeable future, despite what you read, the UK is still part of the Eurozone.



Welcome to Brexit - Continued

After notification, attorneys in Whitehall and Brussels would begin negotiating, piece by piece, a new trade relationship, including tariffs, how open the UK borders will be for travel, and a variety of hot button immigration issues.Estimates vary, but nobody seems to think the process will take less than five years to complete, and current arrangements will stay in place until new ones are agreed upon.

An alternative that is being widely discussed is a temporary acceptance of an established model – similar to Norway’s. Norway is not an EU member, but it pays EU dues, and has full access to the single market as if it was a member. However, that would require the British to continue paying EU budget dues and accept free movement of workers – which were exactly the provisions that voters rejected in the referendum.

Meanwhile, since the Brexit vote is not legally binding, it’s possible that the new government might decide to delay invoking Article 50. Or Parliament could instruct the prime minister not to invoke Article 50 until the government has had a chance to study further the implications. There could even be a second referendum to undo the first.

The important thing for everybody to remember is that the quick-twitch traders and speculators on Wall Street are chasing sentiment, not underlying value, and the markets right now are being driven by emotion to what is perceived as an event, but is really a long process that will be managed by reasonable people who aren’t interested in damaging their nation’s economic fortunes. Nobody knows exactly how the long-term prospects of Britain, the EU or American companies doing business across the Atlantic will be impacted by Brexit, but it would be unwise to assume the worst so quickly after the vote.

But you can bet that, long-term, everybody will find a way to move past this interesting, unexpected event without suffering – or imposing – too much damage. Meanwhile, hang on, because the market roller coaster seems to have entered one of those wild rides that we all experience periodically.

Sources: https://www.yahoo.com/news/brexit-shows-global-desire-throw-142925862.html


http://www.businessinsider.com/global-market-brexit-reaction-2016-6 www.ft.com/cms/s/0/f0c4f432-371d-11e6-9a05-82a9b15a8ee7.html#ixzz4CVixCz25



A Brexit Analysis

A Brexit Analysis (by Derek Prusa of FormulaFolios Investments)

The Brexit votes have been counted, the UK has decided to leave the European Union (EU), and David Cameron has stepped down as Prime Minister. According to reports the votes were geographically segregated as England and Wales were generally pro-leaving while Scotland and Ireland were generally pro-staying in the EU. The votes were also segregated across age and education demographics, with a clear trend of younger/more educated voters landing on the pro-staying side and older/less educated voters landing on the pro-leaving side.

It is clear the Brexit decision has had an immediate negative impact for the global equity markets, so why did a majority of voters (51.9%) want to leave the EU in the first place?

These seem like sensible reasons for the UK to separate from the EU, but there are two sides to every story. There may be some foreseen, but unintended, consequences for the UK as well as the global economy in the coming months and years.

A Brexit Analysis - Continued

A Brexit Analysis (by Derek Prusa of FormulaFolios Investments)

Only one thing is certain at the moment: there are still many uncertainties surrounding the Brexit decision and nobody knows exactly how this will all play out. Emotions and panic can cause investors to make poor decisions in times like these, which is why it is imperative to stay committed to a smart investment strategy over the long-run. By avoiding the urge to make a knee-jerk reaction to daily news, long-term success is more likely to be achieved.


A Final Brexit Word

A Final Brexit Word (by Wayne Firebaugh)

The headlines have teased articles of cataclysmic economic doom and it would appear the world’s equity markets have been reading those articles. The Wall Street Journal’s online edition alone had seven “above-the-fold” articles including the ones with these terror-inspiring titles:

Not to be outdone, the Old Grey Lady included a Sunday op-ed “This is Just the Start of Brexit’s Economic Disaster.” In its US edition, the British daily, The Guardian, published the “US Stock Market – A Toxic Blend of Uncertainty and Complacency” which helpfully cautioned against compounding the looming disaster of Brexit by electing Donald Trump.

No doubt, you’ve read these or similar articles. So I won’t reprise them here or regurgitate all of the things a Brexit might cause if it actually happens. The word “might” necessarily implies conjecture and uncertainty and the world’s securities markets hate both conditions. Fortunately, the Motley Fool provided a number of observations that represented neither conjecture nor uncertainty but rather historical facts – facts about the US stock markets where much of your retirement nest egg is likely invested.

How did the U.S. stock market perform over the last 140 years when adjusted for inflation?

And do you know what happened during this period?

And the market still increased 10,000-fold.

A Final Brexit Word - Continued

A Final Brexit Word (by Wayne Firebaugh)

I have no doubt that the world’s stock markets will continue to serve as the visible expressions of concern and fear regarding the Brexit’s potential effect on the global economy. However, I ask you, in a moment reminiscent of Ronald Reagan just prior to the 1980 election, “are you better off now than you were four years ago?” Unlike Americans from 1980, today’s equity investors must surely answer “yes.” For evidence of this certitude, please consider the following chart showing the growth of the S&P 500 index for the past five years through June 24th.

S&P 500 5 Year ChartNote that even after Friday’s market tantrum, the S&P 500 is still more than 600 points or 40% higher than it was just five years ago. And, although much has been made of its lackluster performance over the past twelve months, the S&P 500 closed Friday, June 24th only 4.47% off its twelve month high (2,132.82 on July 20, 2015) but a sweet 12.56% higher than its twelve month low (1,810.10 on February 11, 2016).

After confirming that you’re better off financially than you were five years ago, please consider whether your financial goals would again be better served by waiting for reason to replace fear and market gains to replace market losses. Then, avoid precipitous actions by allowing those clearly defined goals to drive your investment decisions even during periods when market clarity is lacking.

If, however, this latest market maelstrom gives you pause that perhaps your portfolio does not suit your temperament, consider checking your own risk “temperature.” The following button allows you access to a tool that will, within five minutes, provide clarity as to how you view the tradeoff between portfolio risk and volatility. Then, you can make a decision about your portfolio allocation independent of how the market is responding to a single series of events.