Britain Votes to leave European Union - Our ReactionSubmitted by Madison Planning Group on June 24th, 2016
To Our Valued Clients:
In 1982 the rock band The Clash asked “Should I Stay or Should I Go?”
Last night the United Kingdom decided to GO. They voted to exit the EU.
An (Extremely) Brief History of the UK and the European Union
The EU is both an economic and political union of 28 different European nations. Most of the member states share a common currency, and they work in concert to enact laws and regulations that ensure the free movement of people, goods, and services. The origins of the EU trace back to the post-World War II days when several countries in Western Europe decided to link themselves more closely together so they could prevent another disastrous conflict. Since then, the EU has grown and grown. The United Kingdom joined in 1973, but from the start, it’s been a shaky marriage. Last night’s passing of the referendum is not the first time citizen of the UK have voted on whether to leave the EU or remain part of it.
How will Brexit Affect the Markets?
When a butterfly flaps its wings in Brazil, a tornado forms in Texas. (Or at least that’s how the saying goes.) Thanks to technology, the world is connected in an unprecedented way. There will of course be economic implications of this decision. And it could have an impact on the UK’s short term economy. In 2014 alone, U.S. companies invested a total of $588 billion into Britain.2 These companies could be financially affected if the British stock market suffers. Should certain members of the European Union continue to experience economic hardship, they will have to deal with it without the UK’s help. And as we’ve learned over the last half-decade, volatility in the EU can mean volatility around the world.
Ultimately, however, the biggest impact Brexit will have can be summed up in a single word:
Uncertainty. As we have learned the markets hate uncertainty. The simple matter of not knowing what will happen is enough to make even the sturdiest investors jittery. Uncertainty has been the culprit behind many periods of market volatility. With Brexit, there are so many unknowns, so many variables, so many maybes and mights. The fact of the matter is that nobody knows exactly what the consequences of last night’s vote will be. That uncertainty has already been felt as the futures reacted negatively this morning to the news.
What Should We Do?
The most important thing is not to overreact. Overreacting to uncertainty is one of the worst things we could do, even though it is our first instinct. Whatever uncertainty we may feel; we will not overreact. Instead, we will be careful, watchful, unemotional, and analytical. We will stick to our strategy and focus on our long-term goals above all else. There are two good reasons for this. First is that it’s simple common sense. Second is that actual change will be a long time coming. This referendum was simply to decide whether to start the process. There will be months, maybe even years of negotiations before a complete split actual occurs. So while the implications of Brexit could be significant, they will also take some time to develop. As they say “Keep Calm and Carry on”.
Secondly, know that we will keep a close eye on the situation. In particular, my team and I will be monitoring your portfolio closely and continually. If we feel any changes are warranted, we will let you know immediately.
Third course of action you can take is to enjoy your summer! We will hold down the fort and keep a close eye on the markets. We will contact you if there’s anything else you need to know.
If you have any questions about Brexit, the markets, or anything else, please don’t hesitate to contact us. We are always happy to hear from you, so feel free to call us.
President & CEO
P.S. Not watching the pundits on the news would be an ideal way to implement our third suggestion!