Today’s markets are roiled by the decision of voters in Great Britain to exit the European Union (EU), which has been dubbed “BREXIT.” As with most events in the investment world, there are people out there who make a living scaring you. Rather than panic, we recommend you step back and think rationally what this means.
First, why did the British people vote to leave the EU despite the unified opposition of both of Great Britain’s major political parties? The answer is that more than half of their voting public was tired of being told what to do by un-elected bureaucrats in Brussels (the capitol of the EU). The people wanted to have a say in how they were going to be governed. In effect, BREXIT was a revolt of the masses against the classes.
Polls prior to the election indicated that the vote would be against BREXIT, opting to stay in the EU. The result surprised much of the big money which led to today’s panicked selling at the open.
As we prepare these comments we see a small rebound from the opening bell but the day is young and we don’t know where we’ll be at the end. But if we step back, we think that Brian Wesbury of First Trust has some worthwhile thoughts:
The bottom line is that investors should ignore scare stories about what would happen if BREXIT wins. Great Britain runs consistent trade deficits with the rest of Europe. Regardless of what foreign leaders say before the vote, if the British vote to leave, the rest of the EU is going to chase them to the ends of the earth. No way will they allow one of their biggest export markets to become more distant. They will beg the UK to sign a free trade deal. In addition, and this is actually great economic news, it would free the US and UK to sign a free trade deal that the EU is now holding up.
Any market volatility would be short-lived and any swing to the downside would be a buying opportunity. BREXIT is not a reason to sell. In fact, freedom is a good thing
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