Well, the UK referendum to leave the European Union has come and gone. And to the surprise of many, myself included, the UK has voted to leave the EU. This decision has many short term and long term consequences. Most of which are currently unknowable. This is a fairly unsatisfying premise, but I do believe it is true. We will see this situation evolve over the next few years and decades. However, there are a few things we do know.
As this is an investment blog, let’s start with what happened to the markets immediately after the vote. In the following two trading days, the Dow Jones Industrial Average dropped 870 points (4.83%) to close at 17,140.24. The British stock market (the FTSE 100) lost 356 points, or 5.62%. As money ran for safety, the ten year US Treasury closed at 1.46% (down from 1.74%) on its way to a record intraday low of 1.31%. But the biggest move was in the currency market where the British pound lost 11% v. the US Dollar. This included the largest single day drop in the pound ever: 8% on the 24th.
After a mere two days of pain, the markets bounced. And bounced with a vengeance. As of this writing (7/20/2016), both the Dow and the S&P500 are at all-time highs, 18,595.03 and 2,173.02 respectively. The ten year Treasury yield is still very low at a 1.58%, but well off its low. And the British pound remains low v. the US dollar at $1.3179, down from $1.4877 pre-Brexit (time for that London vacation…?). This stock market reversal was probably due to the realization that the vote was just the beginning of a multi-year process and that the change will be gradual.
Outside of the markets, the biggest change so far has been the resignation of British Prime Minister David Cameron. He has already been replaced by Conservative Party MP Theresa May. This will give the country new leadership to navigate and create the changing economic, political and social landscape. This is an important and necessary move because it would seem disingenuous for Cameron to remain (pun intended), as he was so adamantly against the Brexit.
What remains to be seen is the long term fallout from this decision. Over the next couple of years, the UK will go through the process of exiting from the EU. Most importantly, this will include trade agreements with the EU. When the UK eventually leaves the EU, it will no longer be able to move goods, services or capital freely to and from the remaining 27 members. And, depending on the terms of the agreements, this could cost the UK significantly over the long term. Currently, 44.6% of UK exports and 53.2% of UK imports involve the EU*. It will also need to negotiate trade agreements with its other trading partners as it will no longer fall under the EU agreements.
Until these trade agreements are in place, the uncertainty is likely to hamper the UK economy. Businesses may be less likely to invest or hire if they are unsure of what the rules will be in the future. Foreign investment may slow as a new entry point into the EU will likely be needed. And it seems that this may already be happening. According the The Economist, using real time information, “Evidence is mounting that the real economy is suffering from Brexit”**
But it’s not all doom and gloom. While the economy may be in for some uncertain times, the UK has regained its sovereignty. This may sound dramatic, but to some extent it is true. According to Professor Damian Chalmers of the London School of Economics, “14 to 17 per cent of UK law is derived from our EU membership”*** This is not insignificant. Imagine a “Council of the Americas” with representatives from North and South America dictating laws to the U.S. That wouldn’t sit well with us.
Regardless of how we feel about the Brexit vote, the citizens of the UK have spoken. And, it is their right as a democracy to choose their own fate. The ramifications will unfold over the next several years. And the world will be watching.
*Office for National Statistics, UK
**”Straws in the Wind”, The Economist, July 16th-22nd, 2016
***”What would Brexit mean for British sovereignty?”, The Telegraph, 8 June 2016
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Verity Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.
Check the background of this investment professional on FINRA’s BrokerCheck.
A Financial Advisor registered through CUSO Financial Services, L.P., Gavin has 25 years of experience as an advisor in the Puget Sound area.
“I believe every client is unique and deserving of a personalized financial plan that will help them reach their individual financial goals. Before I make any recommendations, I like to get to know my clients. By asking the right questions, and developing an honest, trusting relationship, I can really get a sense of what’s going to work best for them.”
Gavin graduated from the University of Washington with a BA in Business Administration and started his financial career with US Bank in the Investment Department. Prior to joining Verity in 2006, he spent eight years with Piper Jaffray.
So what is Gavin’s vision for his dream retirement?
“My dream retirement would be absolutely worry free: financially, emotionally, and in every aspect of life. My finances would be in order so expenses for travel, luxuries, and gifts for the kids, grandkids, and great-grandkids would be taken care of. My kids would be financially sound, so I would be confident in their prosperity. This would give me the freedom to travel and play and do whatever it is I want to do.”
When Gavin’s not working, he enjoys spending time with friends and family, watching Husky football and taking weekend trips around the Northwest.
Gavin is registered to transact securities business in the states of AZ, CA, CO, FL, HI, ID, IL, KS, MN, NV, NY, OR, UT, VA and WA.
*Non-deposit investment products and services are offered through CUSO Financial Services, LP (“CUSO Financial”) (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CUSO Financial. Verity Credit Union has contracted with CUSO Financial to make non-deposit investment products and services available to credit union members. Atria Wealth Solutions, Inc. (“Atria”) is not a broker-dealer or Registered Investment Advisor and does not provide advice. CUSO Financial is a subsidiary of Atria.
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