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June 2016 archive

June 2015

Like many others, I am trying to absorb and process yesterday's decision by British voters to leave the EU. While the story will continue to unfold over the next several years, it is not too early to be thinking about the current implications. While it certainly came as a surprise, for anyone who has lived in England, as I did for 15 years, it was not a complete shock. While they may have benefited from economic integration, at the end of the day the country remains an island and therefore is insular by definition-- when Brits talk about Europe they are talking about a foreign country not themselves.

To briefly summarize our views, I think it is useful to categorize the effects of the British withdrawal both chronologically and by area of impact.

In the short term, it is clear that financial markets are going to be volatile and likely marked by falling equity prices. We have already seen multi percentage point declines in stock prices around the world, with Europe and the UK being particularly hard hit, though for the time being, the US has not suffered as much, which makes good sense as we are not as directly impacted. Overall, these declines are not a huge surprise, as markets had been expecting the measure to fail, and had actually gone up several percentage points last week in anticipation of a remain vote. As we all know, markets hate uncertainty and this is certainly terra incognito. However, these kind of knee jerk declines are often short term in nature and can quickly reverse themselves. As I write this, Japan, which at one point was down the most of any major market, is showing a 3% bounce in its futures.

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