First thing – Calm down. I understand that Brexit has come as a shock to many of you as financial markets have shown. However this is the first time in a long time that financial markets have allowed to function free of bounds. This is not a “told you so” moment but I want people to reflect on realities. Anyone trying to give advice on something they didn’t call is not worth listening to
First, market volatility has been enhanced by the ETF market which is exacerbated on the downside. The spreads on the derivatives that are used to hedge leveraged ETFs blow out when these events happen which adds more pressure to the market than it has in the past. If you want tor read more please refer to this piece.
All of this scare mongering saying that the UK will now be cast into the abyss is complete horlicks. It is the 5th largest economy in the world. Rational countries will want to trade with it. Even the EU. For all of the invective likely to spew from the Eurocrats pay no attention to it. The bullying words to keep the UK in failed. They will now be in major damage control to keep the sinking ship alive. If people are worried about Scottish voters wanting to secede from the UK and join the EU it is the equivalent to proactively looking to board the Titanic after the iceberg has been hit. Kneejerk reactions will abound. Ignore them.
Having lived in Japan for the last 17 years I have kept in close contact with politicians here and I have advised them to immediately move to sign a Free Trade Agreement (FTA) with the UK which comes into effect immediately after the UK officially leaves the EU. It is in their minds Japan has massive business interests in the UK (Toyota, Nissan, Honda for starters) and there is no way in the world they will let decades of infrastructure go to waste. It is a free option. It only requires that the existing FTA that the UK is automatically bound by the EU agreement is copy and pasted. It is simple and apart from minor details will inject massive confidence into markets. It is highly likely to occur. The Japanese are not stupid and the EU won’t want to piss off the third largest economy in the world by trying to play hardball.
While people may wail at the shock of Brexit, note the EU is 100% responsible for this demise. It lost the confidence of 52% of the British population to manage their affairs properly. Look objectively at the EU actions in Greece, Austria, Italy, Spain etc and it is so obvious at this blithering incompetence. Brexit sends a huge warning sign for the EU to look at the mess it has got itself into. If it fails to heavily reform then there is little option but for it to fail. So every angry comment you read from Juncker, Merkel, Tusk or Draghi note that there is such unbridled fear behind those words. The sort of fear that a dog can smell and would immediately attack.
The UK will be the best positioned to get its house in order. Remember I think there is a nasty recession coming already which has ZERO to do with Brexit. Brexit is a catalyst. Buy gold and buy the British pound. This sell off treats the UK like it is about to become a nation put under trade sanctions like Iran or Pakistan. Puhlease. We will see that sensible businesses and companies will have no choice but to adjust to the UK being out. No company with half a brain will ignore the 5th largest economy in the world. They will want to take advantage of the new Britain.
I expected Brexit much the same way I expected GFC. This is not a time for panic. It is a time for cool heads. Advantage comes when people look through the noise.
As for David Cameron. He could only step down but I would like to extend heartfelt congratulations for having the courage to have this referendum (despite his opposition to Brexit) and he will in decades to come be thanked as a man of his word. For those that think this was all about immigration, note that 17.4mn voted to leave. The most anti immigration/ EU Daily Express has 559,000 readers. So 3% of the total that voted out. The reality as I have mentioned before is increased poverty, bigger hardship and destitution from the last financial crisis. It has got worse. This is people thinking long term about the future of their country to protect what they hold dear. Sadly the EU did not show any of the leadership that would require them to stay.
Short instability for long term prosperity. Sadly the EU will have to disband. There is no way this sinking ship can be saved. It is only meeting its own self inflicted demise.