Stocks opened the day in the red as news broke about the success of the vote by Britain to leave the European Union. While early trading in the US is referred to as “amateur hour” it is important to hold steady and let the dust settle before making moves. Gold is higher today as are US utility companies. There is a flight to safety or risk off trade happening as investors move to US bonds, cash and other stable investments.
When investing in the markets, there are occasional moments of historic import and today’s vote in Britain to leave the European Union is one of them. While polls had the vote too close to call the bookies had the Brexit vote failing by a solid margin. The final vote however was 52% to leave and 48% to stay. The news shocked everyone and sent European stocks reeling while gold surged to new recent highs. What is most interesting about this vote is that the unelected EU ministers in Brussels were effectively rejected by a voting block over which they legislated but ultimately had no control. Of biggest concern to the tattered remains of the EU ministers is the potential for a ripple effect. After the “Brexit”, will we now see an “Italeave” or an “Oustria” or a “Departugal” or will there be a “Czech-out”? Only time will tell but with the EU in turmoil (and I mean TURMOIL) with possible bank runs, debt defaults in Greece etc., the US is looking more like a safe haven than ever before. Even the Japanese markets fell 7% on the news.
A few weeks ago it seemed to me that the debate in the Brexit issue shifted from “it will hurt Britain” to “it will hurt Germany”. While this was speculation on my part it appears now to hold water since in looking at today’s market selloff, the German stock market is down 5.6% while the British market is only off 2.6%. Big German and US banks are down over 5%. Big US banks are now talking about moving their operations from London to Berlin. How this thing ultimately plays out will not be known for 2 to 5 years. It could create opportunities in Europe but for now it seems prudent to play it safe.