Brexit - My Thoughts
As you know the UK voted overnight to leave the European Union in what is a historic moment in their history. Understandably tax payers of Britain sent a message that they had enough of continually funding other Euro Union members who have made bad economic decisions.
I just wanted to give you a quick overview of what it means, my thoughts and tell you what we are doing through what will be a volatile time period.
- Britain’s Prime Minister was forced to resign overnight after positioning himself on the side of the NO vote. This will not be immediate and will likely take a few months to unravel and vote in a new leader and probably cabinet
- The major concern will be the effect on trade between the UK and Euro zone. Negotiations will not commence till a new government is installed (probably not for a few months) and will likely take years to complete.
- There could be other members that follow suit, but again this will not be quick. You may also hear comments from Scotland and other UK countries about joining the EU. This is what most will call “A potential Domino Affect”
- The UK is around 3% of the worlds GDP. I think this can give it some perspective.
My thoughts
This may create volatility in the markets, but there is nothing that changes our long term thesis for a sustained bull run for US markets. Companies that are domiciled in the UK who trade with other EU members will likely see earnings and profits come down due to future costs they will incur due to restructuring and/or regulatory costs.
Although there will be enormous amounts of media coverage on this, with lots of experts telling potential dooms day stories, I believe we and the Euro will be fine. Historically times like this create great buying opportunities. There are great companies with strong balance sheets and earnings get caught up with the others that have more exposure to the region.
We will be reviewing all of our companies for impact to earnings. We have previously completed this and I do not expect to change my thoughts on any of our holdings.
In summary, this like many of the other major economic issues (Fiscal Cliff, sequester etc.) this could create some volatility, but I feel will ultimately work itself out and in the long term create a good atmosphere for potential profits. There is no need to panic or make any changes to your long term objectives.
If you have any concerns, please don’t hesitate to give me a call
Any opinions are those of Mick Graham and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.
