Thursday’s Brexit Vote to Dominate Markets This WeekWill Granderson
Much like the weather in the UK, if you don’t like the latest Brexit poll, wait a minute. The Brexit vote, for those of you too glued to the NBA finals to come up for air, is a nation-wide referendum that will take place this Thursday the 23rd, in which British voters will decide to “Stay” in the European Union, or “Leave” and go it alone.
While there’s no doubt a certain rollercoaster-esque entertainment in watching the polls bounce all over the place, a lot of people are losing a lot of money in the mayhem caused by this divisive campaign. On Sunday CNBC reported fears of widespread repercussions from a UK departure have “helped wipe billions of pounds off stock markets as investors worried not only about the hit to Britain’s economy and its trading partners, but also about the implications of a so-called Brexit for the EU’s future.”
So as last week’s polls showed public sentiment tilting in favor of Britain leaving, global equity markets tanked. But in a reverse, polls Saturday showed the “Stay” crowd with the edge, sending Monday’s markets zooming. With destructive market whiplash hitting not just European markets, but also the Dow, hopefully you’ve secured a healthy portion of your free cash into tangible assets that aren’t on the Brexit death-maw’s menu.
On paper it seems one way or another the situation should be resolved in a few days. But the political and market turmoil will continue long after the votes have been counted, no matter which side wins. Even if Britain votes to stay in the EU, it’s likely there will be changes coming to the Union. As squeaky wheels go, a nationwide referendum shrieks pretty loudly, and EU officials will likely grease that wheel.
But even in the unlikely event Britain is somehow made happy; it will no doubt be at the cost of other nations’ discontent. Anyone who has kids knows if everybody doesn’t get equal rewards there will be hell to pay. The loose federation of European countries that make up the union already have varying degrees of loyalty to the collective, and its common currency, the euro. So regardless of Thursday’s vote, the economic damage may be irreversible.
Why It’s a Big Deal
Many Americans may be underestimating the sheer economic scale of the European Union. There’s a tendency for some media outlets to pooh-pooh “old Europe” as some kind of second-rate Socialist economy constantly on the verge of bankruptcy because of overly generous public assistance. But while one can dispute the merits of democratic Socialism, you can’t argue with the numbers. The European Union, measured collectively, is a larger economy than the U.S. in terms of nominal GDP, though it depends somewhat who’s doing the measuring. Either way, the EU is either the first- or second-largest economy on the planet, and that alone makes the Brexit vote a big deal. Add in the fact that the UK is the second-largest economy in the EU, right behind Germany, and the true scope of the impact becomes obvious.
Government Overreach on Steroids
What triggered the Brexit referendum is far simpler. Like northern states here in the U.S., the UK pays more money into the EU that it gets back. But what really got the Brits’ knickers in a twist was, as Syria deteriorated further into anarchy and violence, the EU government telling member countries how many refugees they had to take in. Instead of letting member states control intake for themselves, the EU government made that decision for them.
This refugee crisis became the flashpoint for all the minor beefs the Brits had with the EU in general. To throw fuel on the fire, EU courts then granted migrant refugees wide latitude to relocate anywhere in Europe and financial compensation if they were moved against their will. Instead of going lightly on the tiller of leadership, the EU government basically rammed nearly a million refugees down the throats of countries that didn’t really have room for them.
The EU Central Bank Goes Negative
Member nations of the EU are also at the mercy of European Central Bank policies. One of these, which has been extremely unpopular in some financial circles, was the imposition of negative interest rates. It’s one thing if your central bank imposes a tax on saving your own cash, it’s quite another to have it rain down from the ECB.
Either Way, It’s Going to be Good for Gold
No matter which way the Brexit vote goes, gold will be a winner. While there would likely be a huge price surge if the “Leave” faction succeeds, with anyone holding British currency immediately shifting to gold as a hedge against the near-immediate devaluation of the pound, staying may not be that much better for the paper currency. That’s because even should Brits vote to stay, if the “Leave” faction loses by a narrow margin it certainly won’t settle the dispute. The core issues remain, and confrontation with EU authorities would be ongoing. Confrontation leads to volatility and continued volatility means more people will be turning to gold.
The upshot? The Brexit vote will continue to roil global markets, no matter which way it goes. The good news is it’s fairly easy for small investors to shield their savings from the worst of the damage with a shift toward liquid hard assets. Since that’s something you should already be doing, the impending Brexit vote is merely another reason to do the smart thing for your personal bottom line.