A Few Words About Brexit...


happyrat1

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I just wanted to express our sympathies here in Canada for the political and economic chaos which has erupted with last Thursday's Brexit Vote.

We've dealt with a Quebec Separatist movement here in Canada for the past 50 years and now it is evident what a 50%+1 vote can do to a stable and prosperous homeland.

All we can say to Becky and all the other UK members of the forum is, stay strong and carry on with your day to day lives as calmly as possible while the dust settles and trust your government officials to navigate you safely thru the rocky waters in the years ahead.

As of this moment, anything is possible, including a complete reversal in a second referendum.

Stay safe and keep those upper lips stiff.

Gary ;)
 
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Fred Coulter

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I was doing a little research about potential economic outcomes. The Pro-Brexit propaganda has basically concluded that the vote will result in a New Jerusalem. The Anti-Brexit propaganda has basically concluded that the vote will result in Mad Max in England.

A more unbiased source concluded that the total GDP of Britain by 2030 (in other words, after the mad swings we're going to get over the next few days, weeks, and months) will be about 1% different with Brexit than without. The level of noise on a fifteen year GDP forecast is very high, so I'd say that IN THE LONG RUN you'll probably be no better or worse off with Brexit than without. If you've got some spare cash to invest, the immediate future may very well represent great investment opportunities.

Of course, as most economists will say, in the long run we'll all be dead.
 
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Thanks for the kind words @happyrat1, that means a lot :)

For what it's worth, I voted remain. I don't think Brexit will go ahead, it will be economic suicide. We'll see I guess. If it does go ahead then I'm moving to Canada (already started looking in to it) :D
 

Rayblewit

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It has already taken effect worldwide. The stock exchange took a massive hit and people of my age (almost retirement) and current retirees have just had their nest eggs taken away. It will take years to rebuild. Then it is too late.
 

happyrat1

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Ray >>> Fear not for your nest egg son.

I've been following the markets and the reports out of UK for the past few days.

World markets, while currently affected, will be down only temporarily.

Britain's GDP amounts to about 4% of Global GDP and yes in the UK there is total chaos. There is effectively no government and the major banks there have lost over a third of their value in the past two trading sessions.

The North American and Asian Markets, however, have overreacted as usual.

For a stock buyer, this actually represents an opportunity to do some bottom feeding and pick up some bargains. However, timing is everything. There's an expression in the markets called "catching a falling knife" which means buying a falling stock while it's still losing ground.

My guess is that World markets will stabilize within a couple of weeks and recover relatively quickly after that. It will then become a stock picker's dream as you sort out the ones with direct exposure to the UK and the Eurozone and invest in the innocent bystanders who got caught in the crossfire.

So far, the Brexit has cost world economies a total of 2.5 TRILLION Dollars USD.

That is pretty much just a paper loss in reality though. Within 6 months US and Asian Markets will pretty much be trading again back at pre-brexit levels while in England the future is not so bright.

With the deadlines fast approaching to invoke Article 50 and the necessity of a general election in the fall to choose a new government, and then the two year process to "pack up and get out" of the EU, Britons will be facing a hell of an endurance test with a major drawn out economic recession almost guaranteed and possibly as many as 20% of foreign investment jobs crossing the channel to Frankfurt and Paris from the financial sectors and others.

I definitely feel Becky's pain, but if she owns any property in the UK then she should think long and hard before emigrating to Canada or Australia or the US. Real estate values in England will get hammered far worse than the equities markets.

And don't forget, this coming November we face our own challenges if tangerine skinned clown boner D. Trump becomes da prezidunt :p

Grass always looks greener on the other side, until the next clusterf*ck happens :D

Gary ;)
 
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Fred Coulter

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It has already taken effect worldwide. The stock exchange took a massive hit and people of my age (almost retirement) and current retirees have just had their nest eggs taken away. It will take years to rebuild. Then it is too late.

Nest egg taken away? What in heck are you invested in? It sure isn't the stock market.

The US market has gone down about 2% today, following a 3% drop on Friday. A 5% drop basically means that we're back to where we were in January. How long this drop lasts is very much an open question.

English markets are maybe a percentage or so more of a drop, while European markets have dropped about double what England and the United States has dropped.

This is not a "years to rebuild" moment. It may not even takes months to recover.

What's going on in the markets has a lot to do with psychology and very little to do with economics. if you've got some money, this may be a good time to invest it in the market, not take out the money you've already invested.
 

Fred Coulter

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So far, the Brexit has cost world economies a total of 2.5 TRILLION Dollars USD.

The Brexit has cost world FINANCIAL MARKETS, not the world economies. Economies have to do with jobs, production, etc. Markets have to do with stock prices. They're not the same thing. Brexit may cause some jobs in London to be lost due to banks moving to France, etc. But it also means that there will be new jobs in France due to banks moving out of London. Plus the jobs of people moving furniture, etc., from London to Paris.

You want to get an economist to give you a funny look, ask them if Black Friday caused the Great Depression. Or if the Great Depression caused Black Friday. While there are many theories, the reality is that it's not proven either way. (And as a follow up question, ask what stopped the Great Depression. Again, a lot of theories, but nothing definite.) I'd love to be an economist. I'd be employed no matter if my predictions were right of completely off base.
 

happyrat1

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John Oliver's Summary of the Brexit... Sadly this is the American spin on recent events.


Gary :(
 
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Fred Coulter

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The stock exchange took a massive hit and people of my age (almost retirement) and current retirees have just had their nest eggs taken away. It will take years to rebuild.

Now that the drop has ended and markets are beginning to recover, I thought I'd take a look at what happened to my retirement savings. In the last 30 days, my retirement savings dropped 5.72%. That sounds like a lot, but if you translate it to a reduction in the S&P500, that brings it down from the current value of 2017.74 to 1902.26. That last time that the S&P 500 was that low was February 19, 2016. Basically, I just lost 130 days worth of growth.

OK, the reality is that between a month ago and today, the total value of my retirement savings went up. So if I look at the drop from its high, then it dropped 7.72% rather than the 5.72% above. That sounds even more than the first calculation, and it is. But if I translate is to the S&P 500 like I did above, then I'm moved my retirement savings back to February 12, 2016. So I've lost 137 days worth of growth.

These calculations are based on my portfolio, not yours. And I'm using one of the commonly used indexes in the United States. So your results may vary from mine. However, unless you've placed your entire retirement savings onto a bet that Brexit would lose, then the results of the recent market movement is not having your nest egg taken away, or years to rebuild.

As Douglass Adams said (repeatedly), "Don't Panic."
 

happyrat1

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Today's uptick in the markets was what is commonly known as a "dead cat bounce."

It was just that, an uptick while people were consolidating their losses and trying to drive prices upwards.

This is not going away any time soon. How soon the Americans forget their Subprime fiasco.

This is just as big, only not focussed on the American economy this time.

Fred >>> Kindly expand your myopic vision beyond the American markets to see the collateral damage incurred by other markets worldwide.

Ray is in Australia. I am in Canada. Both nations with significant ties to the UK by virtue of our common history as well as our commonwealth memberships.

Believe me, this is just as big as Subprime and it's not going away any time soon.

Gary ;)
 

Fred Coulter

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The UK market looks a lot like the US market. Europe, on the other hand, had dropped far more than the UK.

There are plenty of long term forecasts for Brexit, but they're all over the map. The ones that don't come from either the pro- or anti- Brexit camps don't have much of a long term impact.

According to Open Europe's comprehensive Brexit report, UK GDP could be 2.2% lower in 2030 if Britain leaves the EU and fails to strike a deal with the EU or reverts into protectionism. In a best case scenario, under which the UK manages to enter into liberal trade arrangements with the EU and the rest of the world, whilst pursuing large-scale deregulation at home, Britain could be better off by 1.6% of GDP in 2030. However, a far more realistic range is between a 0.8% permanent loss to GDP in 2030 and a 0.6% permanent gain in GDP in 2030, in scenarios where Britain mixes policy approaches. (http://openeurope.org.uk/intelligence/britain-and-the-eu/what-if-there-were-a-brexit/)​

But the main point I was making was that the nest egg isn't gone. It may become gone in a while, but right now it's not. And panicking about the possibility of the next egg being gone when the actual drop isn't very much is not useful.
 

happyrat1

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Two or three years ago the mere possibility of a Greek default was enough to drive North American markets into the sh*tter.

Now we're facing the possibility of a domino effect in France which also has a significant separatist movement as well as numerous other countries abandoning the EU and going off on their own.

If France opts to leave next, believe me, the EU is done for. Germany can't hold it all together on its own.

And the EU accounts for 24% of World GDP.

Believe me, no matter how the American media tries to downplay this and laugh it all off, this is not small potatoes.

Gary ;)
 

Fred Coulter

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One more chart to show that the UK, US, and Australia are having approximately equivalent market responses to the Brexit vote, while Europe's response is far greater. Australia seems the most sane, but then again they are also the farthest away from the EU. (Both geographically and in terms of time.)

upload_2016-6-28_20-37-30.png


(The numbers are based on the 6/23/2016 index values restated to 100%. I'm not thrilled with the STOXX 50 index since it's only based on (I think) 50 stocks, but I couldn't get historical data on the Bloomburg Euro 500.)) If you want the spreadsheet, just let me know and I'll post it online.
 
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happyrat1

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Believe me. A 5 day chart is meaningless. Charts are meaningless. They predict nothing.

I've been in the markets since the 2000 tech bubble and I've seen plenty of crashes along the way including the subprime fiasco, the flash crash and Ireland and Greece and Portugal and Spain and now the Brexit.

Sure it all comes up again eventually but overall it sets you back a few years everytime it happens and a Dow composite chart means nothing unless you have all of your money sunk into an index fund.

When I look at a 20 year chart of the Dow Jones Index all I see is a dangerously overbought market that is strongly due for a major correction.

Likewise a 20 year chart of the Nasdaq shows that the market has barely surpassed the level it held in 1998 and is again overbought and due for a correction.

Believe me, due diligence in investing means doing a lot deeper research than simply pulling up a Google chart for the past 5 days and knowing what you are investing in.

For a stock picker, it's profitable.

For someone who's bought a bundle of mutual funds without knowing what's inside, it means that between market corrections and fund management fees, you're lucky if you're up 10% after 10 years. :p

Gary ;)
 

Rayblewit

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Wow! . . Fred and Gary . . . You guys are so intense!!

Rest assured guys . .
The queen of England just got a pay rise. She now earns 87 million dollars (aust) per year. As well her property investments are worth 100's of millions. . .
Doesn't that make you all feel better? Becky?
So we are all good! Just ask Lizzie what she thinks about brexit. She doesn't give a crap!:D

Lighten up guys:) LOL
 
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Saw this on Reddit and it made me chuckle:

Brexit worst case scenario: Brexit. Grexit. Departugal. Italeave. Frackoff. Czechout. Oustria. Finish. Hollaland. Slovakout. Latervia. Byegium. Retireland. Norwayout. AdiEU

Gotta laugh... it keeps me from crying :D
 
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Fred Coulter

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I was holding off this post on Brexit until the UK, Australian, and US markets all recovered. As of today, all three markets are back to (roughly) where they were before the vote. If you were invested in the market and you didn't dump your position (and you were in the UK, Australia, or the US), you're no worse off now than you were before the vote. At its worse, you dropped about 7% for a couple of days in the UK.

upload_2016-7-8_16-6-4.png


Interestingly, contrary to my expectations, the UK market recovered the fastest of the three. It went past the pre-Brexit closing on June 30, when it exceeded the close by almost 1%. Following that was the Australian market, which barely exceeded the pre-Brexit close on July 4. Today, the American market exceeded the pre-Brexit close by about 3/4 of 1%. On the other hand, the European markets have yet to recover, and are now about 6% to 7% below the pre-Brexit close. (It's possible to interpret this as the financial professionals think that Brexit will do more damage to the EU than to the UK. But that would be a simplistic interpretation.)

A dead cat bounce was mentioned earlier in the thread. A dead cat bounce is a small short term upward movement that follows a large downward movement, followed by a return to the floor. The price movements of the markets don't match the definition of a dead cat bounce. This is a recovery from a short term rout.

The Excel spreadsheet (which contains the calculations and sources) is shared on Microsoft's OneDrive. Feel free to poke around, check the calculations, and the sources. It possible that I missed something. The address is https://1drv.ms/x/s!Ap-BinL3eT0Ag5VaHjB7mcaqfMun9g. I don't plan on updating this spreadsheet any more. We're back to where we were (other than Europe) and the farther in the future we go, the harder it is to claim that the market is responding to Brexit and not some other factor.

Enjoy and have a good weekend.
 

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