Is BREXIT Europe’s “Lehman” event?
Britain’s vote to leave the European Union is nowhere near the impact of the Lehman Brothers bankruptcy back in 2008. The BREXIT situation at this point is not a financial disaster. How market respond going to forward will tell us more about the impact this development is going to have than today’s reaction. Over the weekend policy makers will be busy working on responses; programs put in place between banks (from the 2008 Credit Crisis) appear to have provided some stabilization, especially in currency markets where price swings were abnormal.
How much will BREXIT impact the U.S.?
This is a Britain/Europe development and has very little to do with the U.S. Thankfully the U.S. won’t be on the hook for a bailout (at least so far).
How much will BREXIT impact the U.K.?
It is impossible to know how this will impact the UK and we won’t know for some time. Like most outcomes there will be some positives and some negatives for the country as a whole and for its citizens. We will have to wait to see where the balance falls. Nothing has changed in the immediate future. The exit will take years.
Is there a risk of other countries “exiting”?
It is a European problem if other countries push for an exit. Greece did not leave partially because they were the recipient of aid. Germany is now the sole country with any real economic strength in the union. Germany now decides if the European Union survives. Who knows, fewer regulations and a more sovereign identity in the region might provide needed stimulus.
Why did stocks react so poorly?
Stocks fell because of a sudden economic change they did not expect. Once the details are better understood the manner in which stocks behave will tell us more about the near-term direction for the market.
Is there a risk this could push the global economy into a recession?
There is always a possibility global economic activity will slow in response to a significant economic development. The global economy is in a fragile state with corporate earnings and sales here in the U.S. already in decline. Again, how stocks respond over the coming days and weeks will indicate the markets view of this development going forward. Up to this point central banks have been very successful at supporting asset prices.
Is there a silver lining?
U.S. companies could ultimately benefit from the disruption created by British companies renegotiating new trade deals.
What should I do this weekend?
Relax with friends and family. Have some fun. Monday will be here soon enough.