Financial Fridays: What the ‘Brexit’ Means!

Nothing.

I almost have nothing more to say about it. I haven't been following the news at all about the entire issue.

But I know a thing or two about financial disasters. This is so far from a financial disaster it's almost ludicrous when I looked at the headlines (although I avoided reading the articles) this morning.

FAQ:

A) Is this bad for the United States?

No, it's great for the United States. For the next five years, British companies and the UK are going to be negotiating all sorts of trade issues: tariffs, taxes, etc.

Meanwhile, nothing at all changes for the US. So US companies will take advantage of the chaos. There's really nothing else to say here.

Oh wait, one more thing: the EU will probably try to stimulate the impoverished economies within the EU now that there is one less backstop to do it. There's basically only Germany left as the only major economic power in the EU.

For once, the US doesn't have to bail anyone out. It's all up to Germany.

 

B) Is this bad for the UK?

Maybe. Like any economic situation. We just have no idea. Some UK companies with heavy commerce in the EU will suffer. And UK citizens, in general, might do better if they don't have to worry about countries like Greece anymore.

The key is: we have zero clue. Nobody does. There is no prediction right now that is accurate. Just like most people predicted incorrectly about this vote, anyone making a prediction about the UK economy over the next five years is probably wrong (on both sides!)

But... the fact that the US markets are down on this is ludicrous. Will Google have less searches? Will Japan and Detroit sell less cars?

(Related:  Financial Friday's: Everything You Need To Know About Economics, But... Actually There's Nothing You Need To Know)

 

C) What does a Brexit actually mean?

It means almost nothing. For instance, nothing really changes today. Or tomorrow. Or next month. Or even next year.

The actual official exit might take place in two years. That's all this vote means.

But the UK has to negotiate with each individual country within the EU on tariffs, trade restrictions, passport and travel issues, etc.

That could take many more than two years.

Note: Each individual country they have to negotiate with. Apparently that's what "Union" means in Europe. So it's a pretty loose union. And when they negotiate, some sides will win and some will lose and it will balance out.

 

D) Was this vote racist?

Maybe. I'm sure some people were racially motivated and isolationist out of fear.

And some people were voting based on economics.

And some people were voting because... who knows? I have no idea. But regardless of the reasons, I'm just curious about the impact. And, I hate to say it, I'm mostly just concerned about the impact in the United States.

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Yes, we have a global economy. But, for the most part, the global economy will feel zero impact from this. And the US will probably be the long-term winner anyway.

 

D) Will this lead to Scotland and Ireland leaving the UK and other countries leaving the EU?

Again; Maybe. Doesn't matter.

The economy is global regardless of who rules every little Shire. Countries might separate, but then if they want to survive, they will figure out how to trade with each other or they will go bankrupt.

The United States has 50 states. They aren't countries. They are separate from each other and they figure out how to trade "across state lines." That's what legal entities do in this economy.

 

E) Why are people sad about this?

Because it feels isolationist. There's the dream (which I believe in) that ultimately all countries can work together in peace and get closer and closer together.

This vote doesn't end that dream. Sometimes you have to take a step back to take five steps forward.

For whatever reason, the EU wasn't working for 52% of the people in the United Kingdom. Now... negotiations will take place to make it work for them again.

And then we'll see how people come together.

By the way, the world doesn't have to come together because heads of state shake hands. Maybe that's the wrong way to think about it.

For instance, there's over 1.6 billion users of Facebook every month, coming from about 150 different countries or more.

Maybe we need to think of world unification according to different metrics than the metrics defined by a handful of corrupt politicians.

 

F) Why is the stock market taking a beating?

For no reason. This is just what happens when there is great uncertainty. This vote was uncertain. It was unexpected what happened. The result is uncertain. So the markets react.

Which means it's most likely a buying opportunity either today or over next few days.

Like every other uncertain financial event in history... (Read more here)

 

G) What should I do today?

Until two seconds ago, I didn't even realize "Now You See Me," the sequel, is coming out today. I think I might try to see it.

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  • Matteo Contrini

    This article can be summarized as “don’t know, no idea, no clue”. Fantastic, right?
    And what matters now? Ah, the TV series, right.

    • It’s a movie. Just sayin’.
      Refreshing to hear people we look to as thought leaders say quite plainly, “I don’t know. No one knows.” Tired of hearing professional pontificator make up stuff to back up their own interests.
      Thanks, James.

    • wjb

      What did you want some BS to either get worked up about or to make you sleep better tonight. James said no one knows, but he also said that in the long run he does not see it to have any major impact on the world economy. Maybe you should learn to read before you try your hand at summarizing.

  • Peter Coyne

    Now You See Me 1 was so awful, though…

  • Andrei Vorobiev

    It can be summarized – “chill out, people…” Rightly so. I’ll reach over for my copy of Fooled by Randomness and have a nice read.

  • You’re better go watch The Conjuring 2, James! NYSM2 is not as good as the 1st movie. :)
    Thanks for the Brexit insight!

  • Taiwo Fuwa

    Love that you nailed it James, no body knows

  • Ark Ark

    i’m in the UK and based my vote on reclaiming the right to create our own laws, a large portion of which were crafted within the EU, basically this refurendum was about democracy for me, the EU is by it’s very nature undemocratic.

    This is one of the key reasons people have become disillusioned with electoral politics, their vote whilst we were part of the EU had much less significance on our laws because they’re created by unelected, unaccountable EU commissioners in private and behind close doors, only then are they passed to the EU parliament to be rubber stamped by an elected MEP to give the perception it’s democratic.

    I have other issues with the EU, IE i’m generally skeptical of such big bureaucracies with 10,000 workers, but democracy is primarily why i was swayed to vote out. Don’t listen to all the bullshit about this being a mass uprising by racists, that is prejudice garbage peddled by gaurdinistas.

    • index1000

      No it isn’t. You are either dishonest or delusional. The predominant factor on the leave argument was immigration and immigrants immigrants immigrants. You are a racist. (probably) if you are one then be one don’t weasel on about Democracy creating our own laws etc etc. The Uk makes its own laws the EU which it was a member of makes some laws mostly to do with trade and the environment. When it comes to Criminal law, welfare, NHS etc it is the UK making them.

  • Sverrir Jonsson

    @James: I think you should do a tick more research before posting stuff… For example your point “C”: It all depends on when the UK calls the shot. Based on Article 50 of the Lisbon contract, a member state has EXACTLY two years to get things sorted AFTER the §50 is invoked (i.e. the UK officially declares they want to “exit”). If the UK has not finished negitiation with the remaining 27 countries, they’ll simply be dropped out.

    Point “B”: The UK has nothing to do with the bailing out of Greece, they’re not in the Euro zone anyway.

    Pint “A”: The US hasn’t bailed anyone out since the Marshal Plan (that back fired when German Industry overtook the US on all fronts).

    Point “D”: This has nothing to do with Ireland … Northern Ireland, yes, but not the republic of Ireland.Ireland is in and will stay in, but Scotland might hold another referendum to split of from Britain (Leaving the English and Wales in “Little Britain” – If you get this one, let me know!!!)

    Point “E”: “EU wasn’t working for 52%” Sure …. Most of those are Babyboomers or their Parents, that will not have to pay the burden over the coming decades. They are simply stupid old sods that probably all phoned in their vote on the last “Celebrity Big Brother”

    • MillenialMayHymn

      It sounds like you are from the EU (Norway?) Hopefully so as you would know that the UK GDP is 100x that of Greece. A debt ridden, high unemployment compared to the 5th largest economy in the world. If anything the US and UK will both benefit from this. The 3 biggest stock exchanges will of course see tanks after news like this.

  • Gordon Platt

    How can you profess to know nothing about Brexit and then go on to pontificate about it for several hundred words? Everyone who’s been in business or even lived through the last decade knows something about financial disasters.

  • Thea

    People freaking out about nothing as usual

  • Mike

    “The United States has 50 states. They aren’t countries.” Have you seen the declaration of Independence lately? Can you explain to me when the states of the American Union ceased to be countries?

    • Michael Enquist

      When they ratified the US Constitution.

      The D of I is not any kind of binding document for the federal government or the States or the People. It is only a notice to the world as to why the Patriots chose the path they did. It even says so:

      …a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

      • Mike

        The colonies declared themselves to be independent states by adopting the Lee Resolution and passing it as an act of the 2nd Continental Congress on July 2nd 1776. You probably don’t know that because it’s not taught in federal schools. The constitution is a compact (contract) between those sovereign states which was entered into as it says “to create a more perfect union”. (the union then existed under the articles of confederation) The contract confers some of the sovereign powers of the states to a federal union just like the EU. The contract created the federal government which was one of delegated powers, not that you are going to get that from DC today. If the states aren’t sovereign it’s because that union was destroyed by the civil war. Under reconstruction the Feds took over but the question remains did they or do they possess such power based upon the founding documents they claim. You can understand the original intent of the constitution by reading “view of the Constitution of the United States” by St. George Tucker, a justice of Virginia and signer of the Declaration of Independence. It’s available online.

  • RapmasterD

    Best post in a very long time. A lucid, logical and unemotional POV that is much needed right now.

  • James….don’t rush out to see “Now you see me 2” I saw it last night and thought it to be overly complicated, with a lot of dialogue needed to explain the plot line. A bit too ambitious in it’s own goals, in my opinion.

  • Troubled Water

    James, I love ya, man… and I’ve been reading you for years… but when it comes to geopolitics, centralism, and just about every FAQ comment listed above, you don’t a have clue.

    A) “It’s all up to Germany.” The German people have had it up to asses repeatedly bailing out other EU states. This is common knowledge… and UK bowing out will result in Italy, France, and Germany following suit, along with others. But Germany is the EU, so it won’t make any difference once their gone. The EU will be in shambles within 6 – 12 months tops.

    B &F) If the US economy was based on Production instead of Information, the market would not have been thus affected. The real question to ask is why the markets are so high? Based on what? As you say, Google searches? FB hits and advertising? Waiters and the service industry? This is not an economy… it’s a illusion… a puppet show being put on and controlled by centralist planners. It’s a digital mirage with little physical substance. Oh, and by the way – THE DETROIT AUTO INDUSTRY NO LONGER EXISTS! No plants, no HQ… nada. Exactly my point above – NO PRODUCTION.

    C) What does Brexit really mean? Empowerment. A little Johnny Cash sign language – FU EU! This will embolden other countries on the cusp to make a leap of faith. See above – 6 to 12 months and the floor falls out beneath the EU.

    D… both of them, lol) “…the global economy will feel zero impact from this.” It already has James. Read the freaking news sometimes… and I mean REAL NEWS… not the state sponsored MSM drivel. And this ain’t just about economies. Far from it… this is social revolution and backlash from centralist control sans true representation. Zero impact? Your going to want to erase this post in the future!

    E) I think you’re confusing isolationism with autonomic control over one’s sovereign destiny. Again, this going back to the concept of centralized control. Why the fuck does the UK need a group of technocrats in Brussels guiding their destiny? Do you want your neighbors telling you how to live your life? Sorry, James, you can’t just live out your car or worse yet motel to motel. YOU HAVE TO OWN A HOUSE, JAMES… PAY PROPERTY TAXES, MOW YOUR LAWN, etc, etc.

    In the end, this is ultimately about personal sovereignty, be it an individual or individual societies. You mentioned in your post about countries getting along, communicating better, etc. Let me ask you this: is it easier for you to communicate and interact with others on your own accord… or would rather have your parent(s)/family/friends constantly looking over your shoulder influencing your ability to interact with others? The UK, via castrating ties with Brussels/EU, will be in a much better position to act on their own accord for their own best interests.

    Brexit is just a divorce of sorts. Shit wasn’t working out. Time to split and move on. I’ve been there, you’ve been there… and there ain’t no such thing as Zero Impact! You’ll never live this down, bro. I still love ya, man.

  • Being a pedant on point D – (The Republic of) Ireland is not part of the United Kingdom. Northern Ireland is part of the United Kingdom. Ireland will remain in the EU and this referendum does not apply to them.

  • FV 2016

    ark ark there are plenty of racist people who voted leave. You might not be one of them but you are certainly aligning yourself with the like of Farage. Perhaps for your own conscience you feel it is not about immigration but the leave campaign is definitely giving lots of oxygen and permission for people to say a lot of things to immigrants that they are not welcome in UK regardless of how much many immigrants built the kingdom that it is now. But many leave voters prefer to choose not to acknowledge these aspects because that would make them feel bad.

    The truth is if the consequences will be far reaching and it will hit the poor most. if you are not at the table don’t expect the negotiation to go your way. There are 27 other countries and very naive for people to feel that if we are out we can call the shots. We have just denied our children access to 27 countries. But as usual people want their cake and eat it. They want to choose the type of ‘immigrants’ they want.

    I think your last sentence already reveal the kind of person you are. That someone your view is not prejudiced and that if people point out the issues in your camp they are bullshitting. For that I am glad I am not in your camp.

    People are totally entitled to their opinion but both sides need to come to acknowledge worries on both sides. Turning a blind eye to racism is like many catastrophies in history where by people justify why they have to treat another group of human being differently. The leave campaign is full of UKIP voters and their ideology is dangerous.

    Sorry James for using your blog to vent my frustration but your views have been simplistic.

    • wjb

      How exactly is it racist to have a preference to your own people (from your country irrespective of race) have the jobs and not someone from another country (once again irrespective of race)

      Immigrants from say Poland (white) go to the UK and do manual labor for the bare minimum. This is a fairly commodised market, so the lowest price wins. This a large section of the UK’s bottom class has to face competition driving down pay. This is not racist, just people who feel that in their own country they should come first. Please explain how exactly that is racist (as defined by a hate / prejudice against someone based on the color of their skin)

      Your idea that the youth will be denied access to those countries are also fairly shallow, since there are millions of people outside the EU that enter and work in these countries, so once again a fairly weak straw-man you set up there.

      The reality is that over the longterm the effect of the Brexit will approach 0. Britain will still have goods on offer and needs, and these will be imported and exported. There might be some taxes and duties involved, but the negotiations on both fronts will result in an optimal solution.

      You have been eating at the trough of political BS for too long.

      I’m sure you have a hard time figuring out how countries like the UK and Australia and Canada, and all the other countries apart from the 27 EU nations actually function.

      James is spot on in the end it does not matter who rules the shire, trade is trade. Supply and demand.

      Sure some racist people voted leave, but then again some racist people voted stay. Next time you make assertions about racism and other things you know nothing about, don’t.

      Oh and just to make sure you don’t have access to some moral high ground, I was once a “migrant worker” in the UK.

      • FV 2016

        you are entitled to your view but I choose not to use James’ blog to reply to you because frankly it is pointless. Just because you were once a migrant worker did not automatically make you not a racist.

        • foulkeyu

          This and many of the other responses illustrate how ridiculous the “racist” label has gotten.

          Poster A: “I based my vote on democracy and the need to establish our own laws in the UK.”

          Racism Brigade: “No, even if you think that, you’re really a racist. That’s really why you voted for this.”

          Poster B: “What’s racist about opposing white people from Poland, for example, coming over in massive numbers, creating incredibly rapid culture change and destroying the ability of the working class to make a living? How are you ‘racist’ when against this?”

          Racism Brigade: “Uh, I don’t know. Let’s ignore that they’re white, as well as the fact that you said you were a migrant worker. You’re racist anyway since I know that label will render anything you have to say invalid among most unthinking morons.”

          • Alexander Kofler

            same here in germany. exactly the same. stupid left wings.

    • heavysighed

      The trouble is, the people who cry “racist” are usually the same people who support Germany’s deeply inhumane and very poorly targeted policy of admitting anybody who can afford to pay a people smuggler onto their welfare system at great expense while leaving the Syrian refugee programmes severely underfunded in the Middle East. In the Middle East, half the refugees are female, 40% are children; for the cost of admitting one refugee and one economic migrant to Germany, the UNHCR can support 30 refugees in the Middle East. If Germany had just supported refugees in the normal way through the UNHCR, Save the Children etc, it could have funded the entire $4.5bn 2015 Syrian refugee programme in the Middle East several times over for what it cost them to bring in a few hundred thousand refugees; instead, that 2015 Middle East programme was left at just 56% funded (source: UNHCR 2015 Regional Refugee and Resilience Plan, Funding Snapshot 29 December 2015). That doesn’t seem caring to me.

      Even worse, the people who cry “racist” also tend to favour the very politicians who created the refugee crisis in the first place by escalating violent revolutions in poor countries, leaving them devastated. Libya is now so much “improved” that its population has fallen by 1/3, and Syria is not far behind. If you care about people in another country, the last thing you do is encourage violent revolution, however much you dislike their government. UKIP has always been firmly against these wars, and yet somehow, through the great distorting lens of politics, they’re seen as the bad guys.