BREXIT UPDATE
What does this mean to your investments? Terry’s thoughts before the market open. And midday update!
Terry Says: As I write at 8am on Friday morning, before U.S. markets open, world markets are roiling at the news that Britain has voted to leave the European Union. The British pound has fallen to 30 year lows, as money flees the country, seeking safety in the U.S. dollar and Japanese yen. The Euro is significantly lower on fears that this is the start of a breakup of the European Union, which combined is one of the top three global economies. Gold is up sharply, more than $50/ounce overnight to $1327.
U.S. markets will open sharply lower as panic selling ensues. Don’t join the panic selling! It will be ugly– but if you’re selling out of a mutual fund you will get today’s CLOSING price — bound to be a disaster! And yes, next week could be even worse, as margin calls force big global traders to liquidate positions. But if you are a long-term investor, you will want to ride this out.
Think about it: All that money rushing into the dollar has to go somewhere! And it’s not all going to sit in Treasuries (where all the new money has pushed yields even lower). Much, eventually, will find its way into our stock market, into dividend paying stocks and those that offer yield.
Yes, the strong dollar is bad for U. S. companies that try to sell things abroad. Our products become more expensive to foreign buyers — and that cuts into profit and jobs at home, hurting stock prices. And Brexit is bad for global trade, and will cause a global economic slowdown. But as bad as it is for us in America, it is worse for those in Europe, who wonder whether other countries will now leave.
We will get through this and the world will reorganize, but it will take time — at least two years to sort out the Brexit implications. So there will be volatility. And that will be unsettling. I repeat: Don’t sell into a panic.
A final thought: Now you know the benefit of having “chicken money.” Even if you’re at the withdrawal stage from your retirement accounts, you have a large cash component so you are not forced to sell. You will sleep better over the coming weekend.
UPDATE 12:30 pm
No surprises so far. The markets decline, but in re-adjustment, not panic. This coming weekend will be a time of re-evaluation of the possibilities –and of margin calls which could cause a big downdraft when markets reopen on Sunday night in Asia and Europe. The “smart money” is re-pricing risk. You remember the classic definition of risk: It’s the price you never thought you’d have to pay!
