Well, well, well – what interesting times we live in, right? We now find ourselves in the initial aftermath of the United Kingdom’s referendum decision to exit the European Union. The “Brexit,” as the event has been appropriately nicknamed, seemingly flies in the face of conventional wisdom, and comes as a complete smack down to the power players within the UK’s political and business communities.
So allow me to prove that the time-honored sentiment that “everybody’s got an opinion” is alive and well by offering up my own perspective on near-term implications associated with the Brexit, as well as some off the cuff thoughts about how the overall economy may perform over the coming quarter.
On it’s face, the Brexit is a fascinating political and economic event the repercussions of which are likely to be felt for some time to come. At a minimum, I expect that the currency market and global stock exchanges will remain unsettled in the near-term. As much as people don’t like change, the markets REALLY don’t like change. So, I expect that the British Pound and the Euro are likely to drop further against a relatively strong US Dollar.
I also expect that the US stock exchanges will go through a period of cycling up and down in response to the inevitable ripples that will result from the financial markets coming to grips with the realities of the Brexit. For example, Scotland’s First Minister Nicola Sturgeon has already stated that she expects another near-term referendum that would prompt Scotland to exit the United Kingdom and preserve ties with the EU. Other countries in the EU may also attempt to pursue fresh referendums of their own, the outcome of which could further weaken the European Union’s political and economic standing.
In the early aftermath of the Brexit, it seems that many analysts believe that the longer-range impact to the US economy is unlikely to be too significant, and that the Brexit is unlikely to push the US towards a recession.
The unknown, however, is hard to quantify. There will be ramifications – both political and economic – and in my experience, these kinds of ramifications often result in surprising events that no one saw coming (and remember what I said a moment ago about the markets having a decided distaste for surprises).
So, here’s my quick summary for what I think we will see in Q3:
Oil – Down
Gold – Up
Housing Prices – Up
Interest Rates – Steady
The Pound – Down
The Euro – Down
The Dollar – Up
The US Presidential Race? – Sad….Really, Really Sad.
The possibility of a Texit? (Texas becoming an independent nation?) – Low, but oddly appealing.
So, in closing, strap yourself in for an interesting 3rd quarter.
And, in the face of all of the Brexit uncertainty, I encourage you to take a vacation, relax, and have yourself a refreshing beverage. The one thing that I’m sure of is that tomorrow, the sun will rise, and we will find a way to carry on.
