Friday, June 24, 2016

Great Britain has shocked the global markets by voting to exit the European Union, by a vote of 51.8% to 48.2%. As a direct result, Prime Minister David Cameron has stepped down from his post, remarking the country needs “fresh leadership.”

Considering the markets were trading with roughly 3-to-1 odds against Brexit happening, you can believe long positions are being shaken everywhere, and absolutely everything (besides gold) is down this morning:

Dow -533
Nasdaq -165
FTSE -4.57%
France -8.45%
Italy -10.45%
Spain -12%

The British pound has fallen below 30-year lows, but curiously has not plummeted as deeply as other currencies. All big Wall Street banks — JPMorgan (JPM Quick QuoteJPM - Free Report) , Citigroup (C Quick QuoteC - Free Report) , Bank of America (BAC Quick QuoteBAC - Free Report) , etc. — are down 6% at least.

A huge shifting of business relationships and consequences are immediately boiling to the surface, which may take years to correctly resolve. But even beyond the shakeup with Great Britain, what does it mean for the future of the EU itself? Shall we expect other dominoes to fall?

Of course, if you’d gone to cash the way George Soros did ahead of the Brexit vote, you can wait for opportunities where new growth rises from the ashes. The rest of us are going to need a long bath.

The last time we saw a macroeconomic force rattle the markets to this extent was when China devalued its yuan currency. It took the equity markets months to recover.

Following Brexit, we should be so lucky. If the EU is serious about retaining its $15+ trillion economy intact going forward, we should see a lot of activity and cooperation with the remaining nations. History says that is a lot to ask.

Nobody has gone broke (yet), so this really should not be compared to the collapse of Lehman Brothers. Even a decoupling of other members of the EU — or decoupling anywhere in the world, from Scotland to Texas — does not guarantee anything more than near-term uncertainty. Clearly it greatly increases the odds of other events causing market tumult; it’s up to the responsible players to be grown-ups about the circumstances before them.

Mark Vickery
Senior Editor