“I’m confident that the United Kingdom is committed to an orderly transition out of the E.U. One thing that will not change is the special relationship. That will endure.” President Barack Obama (Speaking at a Stanford University global entrepreneurship summit meeting, June 24, 2016)
We awoke on a Friday morning to the news that British Prime Minister David Cameron had resigned following a Thursday, June 23, 2016, vote by the UK public to leave the European Union, a move experts predict will lead to worldwide financial uncertainty.
Later in the day, former London Mayor Boris Johnson launched an appeal for unity and attempted to draw a line under a bitterly divisive European Union referendum campaign, known as ‘Brexit’. Mr. Johnson also said, “I believe we now have a glorious opportunity. We can pass our laws and set our taxes entirely according to the needs of the UK economy. We can control our own borders in a way that is not discriminatory, but fair and balanced. [...] Above all, we can find our voice in the world again." (Watch his full statement courtesy of The Guardian newspaper).
Shortly after news of the vote, the British pound dropped to its lowest level in 30 years and the FTSE 100 (the UK main stock market) fell as much as 8.7% when the London market opened. Ironically, the British market ended the week with a small gain. Financial markets in the US didn’t fare so well, with the Dow ending the day down 610 points.
Republican Presumptive Presidential nominee Donald Trump said he wholeheartedly backed Britain’s decision to leave the EU and once again forge its own path. “You just have to embrace it,” he said. "It’s the will of the people. What happened should have happened, and they’ll be stronger for it.”
So, what does all this mean for us entrepreneurs here at home? Bob Stovall, U.S. equity strategist at S&P Global Market Intelligence, said in an email to USA Today, “Falling prices will unveil long-term buying opportunities, particularly for mid- and small-cap stocks” not as exposed internationally. "In the short term, markets will trade on emotion, so make sure you don’t end up becoming your portfolio’s worst enemy,” he said, adding that investors should “stay calm and carry on.”
Great Britain is a small country of about 65 million people.
Many pundits are forecasting that some US stocks will be badly hurt by Brexit.
Here at home, what worries me now is how American consumers will react to the whole Brexit issue. Any concern on their part could see a slowdown of the economy – and it really hasn’t fully recovered from the 2008/2009 financial crisis.
Let’s face it: If consumers don’t spend, the economy doesn't grow. How much they spend often depends on how they feel about where the economy is heading. We don't buy major purchases like homes and cars if the future looks bleak. A stock market downturn can really put a damper on a person’s spending or investing.
Brexit has already caused a massive selloff within global stock markets. If that continues for any considerable length of time, it could cause US entrepreneurs, business owners, and consumers to reconsider their spending plans, such as taking companies public or starting businesses.
The Wall Street Journal reported: “For markets, the 'Brexit' vote could signal that current monetary policies are failing and near exhaustion and that investors everywhere should prepare for a series of inward-looking governments more willing to take protectionist measures that would restrict international flows of trade and finance. That would likely have a debilitating effect across economies and markets.”
What caused the British people to vote to ‘leave’ the EU? The New Zealand Herald summed it up this way:
- It appealed to misguided "British" values
Millions of Brits were attracted to the idea of homogeneous England of old. Xenophobia is on the increase and Brexit did a great job of normalizing racism across Britain.
"There's a little Hitler in all of us", wrote Andrew Sarris in 2002, "If we are not held back by any moral or social restraints."
Brexit normalized the pathological act of denouncing ethnicities and religions. Much of the campaign rested upon the idea of an imagined Britain of the final years of WWII when Churchill was a hero and Gandhi a terrorist.
- They weren't wrong about the EU
The EU is a very clunky beast which was caused a huge amount of economic problems for countries such as Greece, Portugal, Spain, and Ireland. It's a system of open markets in which competition is eviscerated in a shared currency. Britain has never taken on the Euro, and therefore managed a position of reasonable strength - but the Brexit mob isn't wrong about the unwieldy and regulated organ.
- It was a revolt against prescriptive elitism
Just like Donald Trump's populist movement across the United States, Brexit was a movement with a place for the everyman to stick it to the banks, the politicians, and the corporations who've been prescribing ideology to the masses. Like New Zealand’s own Flag Referendum, it was an opportunity for the country to collectively say, "Get stuffed" to the Government.
- Leaving may curb immigration to Britain
There is an argument in England that Poles and Romanians have caused unemployment. For every British person able to do a job, there are 50 immigrants who will do it cheaper. This is an emotional argument that feeds into xenophobia but is a massive cornerstone of Brexit campaigning, especially from Nigel Farage.
- Scaremongering from the British press
A number of very well-read British dailies have made no secret of their support for Brexit, meaning skewered facts and biased reporting may be diluting the facts about Britain leaving the EU. For example, a recent article from the Daily Mail gave "20 reasons why you should choose to leave."
- It's made a mockery of David Cameron
The British Prime Minister reluctantly agreed to hold referendum for leaving the EU to quell the unrest coming from Euroskeptics within his party. It has spectacularly backfired and heralded the resurgence of Nigel Farage. David Cameron is now grappling with a country in revolt, and Boris Johnson hasn't done him any favors by joining the bandwagon.
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Leaving the EU was a substantial step for Great Britain. The decision was in many ways a social, cultural, and political one, but it is also one that carries economic implications.
We are entering uncharted waters and the full magnitude of the economic costs and benefits of Brexit will not be known for some time. Even now, the political parties in Great Britain are in complete disarray: the Prime Minister’s resignation, revolt in the UK Labor Party, and a seeming lack of leadership, generally.
And with Brexit there are many unresolved issues, such as Scottish Minister Nicola Sturgeon suggesting that the Scottish parliament could veto Brexit by blocking the passage of legislation necessary for the UK to leave the EU.
Who knows where Brexit will end up? To be sure, there is plenty of confusion and nervousness to go around. For now, we simply need to wait and see how the financial markets react in the coming weeks and months.
One thing’s for sure: this story isn’t over yet.
With all that said, I guess every cloud has a silver lining. With the British currency dropping in value, now might be a good time to take that trip to the UK!