Brexit - a 3-day wonder for markets (JMO)

Investment Analysis Clubs Saul’s Investing Discussions
1

Sure the markets will be down for a day, because they think they are supposed to be. But in three weeks, who will care? Everyone will be thinking earnings season.

Nothing will actually happen for two years until they work out the details. And besides:

Will LGIH sell fewer houses in Texas because Britain leaves the EU?
Will Skechers sell fewer shoes because Britain leaves the EU?
Will Amazon sell fewer books and cloud services because Britain leaves the EU?
Will Skyworks sell fewer complex chips because Britain leaves the EU?
Will CBM sell fewer drug particles because Britain leaves the EU?
Will SBNY, which has 100% of its business in the NYC area, do less well because Britain leaves the EU?

Just go through your companies and see what you think! Do you think the next few quarter revenues and earnings will be affected? At all?

Best,

Saul

43 Likes
2

SaulR80683: Sure the markets will be down for a day, because they think they are supposed to be. But in three weeks, who will care?

From Bloomberg (just one of many this morning):

The risk of a global recession is now more than 50 percent after Britain voted to leave the European Union, according to asset manager T. Rowe Price Group Inc., which oversees more than $765 billion in assets.

“Those who believe Brexit is a U.K. problem are misunderstanding the impact it will have globally. They’re forgetting the impact that Greece had – and Greece is much smaller than the U.K. and not a financial center,” said Arif Husain, head of international fixed income at T. Rowe Price in e-mailed comments. “The vote to leave could result in a global recession.”

http://www.bloomberg.com/news/articles/2016-06-24/global-rec…

http://www.moneycontrol.com/news/market-outlook/brexit-china…

http://www.newstatesman.com/politics/staggers/2016/06/brexit…

http://www.independent.co.uk/news/uk/politics/brexit-eu-refe…

8 Likes
3

This could be a great buying opportunity… Christmas in July :slight_smile:

1 Like
4

Note the UK will not leave the EU for 2 years while exit is negotiated.

The perception of danger does not lie with the UK, the world’s fifth largest economy (and likely one day to be the fourth).

The perceived danger lies in other EU members demanding similar referendums and the consequent break-up of the EU. There is widespread dissatisfaction with rule by its unelected, unaccountable, corrupt and wasteful politburo.

15 Likes
5

its unelected, unaccountable, corrupt and wasteful politburo.

I don’t have the same point of view as streina (for example, of course the European parliament is elected, and corrupt? where do you get that?), but there are a lot of problems with the EU.

Back to Britain,first of all it never joined the Euro Zone and kept it’s own currency, the pound, which will make its exit much, MUCH, easier. Second, it’s an island nation, which never really identified with the rest of Europe, and always had a special, looser, status. Also will make it’s exit easier.

Back to the EU. Having lived in Europe for a little piece of each of the last 15 years or more, I can say that the EU never became a nation. No one ever felt, “I’m a citizen of the EU.” People thought of themselves as French, or German or Spanish or Italian. For most people the EU was just a set of rules. The great thing was the lack of borders and custom barriers between the countries, and a long period of peace. But lack of internal borders only works when the external borders work, which they stopped doing recently. And how can a country work when its 28 sub-countries have to agree unanimously on any important piece of legislation? What a ridiculous way to set up a government! And when all legislation must be translated into 28 languages? The problem was that they took in too many countries before they set up a central government that worked, and that must have been because the original countries were unwilling to give up sovreignty. Imagine if every state in the US had to agree on every Federal legislation, and if every state had its own language.

No common language!!! When France wanted to become a country 300 years ago, they took the language spoken in Paris and said this is what we’ll teach in the schools in all of France, from Brittany to Provence! A lot of local dialects (like Provençal, Breton, Langue D’Oc, etc) died out, or were spoken just at home, but everyone learned to speak French. When China now wanted a unified country, everyone has to learn Mandarin, and they can speak Cantonese or Shanghaiese, or whatever they want, at home. The only common language in mainland EU is English. It’s spoken everywhere by many people, but not mandated anywhere, so it’s still a tower of Babel. Maybe with England out, the EU could see mandating English as not favoring any member country (as choosing French or German, etc, would).

Sorry for rambling.

Saul

28 Likes
6

Congrats to those who always have some cash and don’t stay fully invested - this opportunity is looking outstanding.
I read a lot of stock boards and NOT ONE mentioned BRexit as being this large of an immediate risk/opportunity and how we should prepare for it. 20/20 hindsight now shows that if they remained in EU then the market would probably have not moved at all. So the wise move would have been to move into cash and move back in after the decision.
I know many will say ‘in the long run it won’t matter’, BUT this is looking like today would have been a GREAT DAY to have cash to move in on the multiple baseless fire sales going on today.
These are the times to take advantage of market irrationality, but unfortunately I’m fully invested. I’ll probably shift assets from the less affected to the most affected.
We will all be very lucky if this is just a 3 day blip. I doubt that though.

2 Likes
7

There is widespread dissatisfaction with rule by its unelected, unaccountable, corrupt and wasteful politburo.

If I may go off-topic a little bit here, there’s also a lot of confusion about the leadership of the EU.

I live here and hear a lot about the “unelected officials” but none of the complainers can ever point to a concrete unelected official. They are all either elected or are appointed by the elected ones (the way the British Prime Minister is for instance). They can also be removed from power the same way British members of the Parliament (and the PM) can be.

Similarly none of the discontent people can explain how exactly are the EU bureaucrats “corrupt” - searching for any corruption scandals in the news I find very little. Almost all of the corruption happens after the EU funds are handed to local authorities of the recipient countries.

Also - the “lack of sovereignty” that a lot of the EU-skeptics are talking about also seems irrational. When I ask people about what EU policy was forced upon them that they disagreed with they are quick to point out the immigration and asylum seekers, but beyond that nobody can come up with anything tangible.

On top of that, people have been living in very prosperous times - in the last 20 years in the EU. Apart from Greece it’s hard to find any nation that has been better off 15 years ago than it is now. This “dissatisfaction” you are talking about has just been spreading like a wave of irrationality all over the continent fuelled by the hatred spewed from the headlines of the tabloid media.

Again, sorry for off topic but I just wanted to convey the situation from the front line so to say.

I’ll be taking advantage of the discounts of the markets myself but I would recommend caution - don’t blow your available cash too soon. The situation in Europe is weird and today’s dips might not be the deepest to come in the near future.

20 Likes
8

I’m not in a rush to do anything, but I am looking at which companies (stocks) are down most. To my surprise, it is LGIH, down 10%. I am weighing the possibility to add a small amount as I don’t see why it should be down two or three times as much as others such as SBUX, SWKS, PCLN, AAPL…

KC

2 Likes
9

Well said Saul. I know you like to keep politics off this board, but
your post explaining how the EU actually works needs to be read by everyone. There are so many misinformed comments about the EU and I think that helped the Brexit campaign. I suspect some voters’ remorse over the next couple of years.

1 Like
10

As a UK resident, I don’t think you’re putting forward an entirely accurate view from the front line. In no particular order, I offer some of my thoughts to provide an alternative perspective.

  • There are plenty of unelected officials in the EU - Jean-Claude Juncker for one. (Appointed by an elected official is not the same as elected.) Also, the British prime minister is usually directly elected by the people, unless of course, he/she resigns or is ousted mid-term.

  • With such a large number of EU members now, it is rightly perceived by the people of the UK that it is very difficult to influence EU decisions or hold anybody in the EU bureaucracy accountable for anything.

  • Some of the southern European countries have had very high unemployment rates for years, e.g. Spain - 22%, Greece - 24%, Italy 12% with youth unemployment in Spain standing at 46%, Italy 39% and Greece 50%. Just look at those youth unemployment rates, they’re shocking and represent a lost generation! The citizens of those EU countries have not been living in prosperous times and in some cases their GDPs are smaller now than they were in 2000.

  • I haven’t heard any charges of corruption levelled at the EU, but it’s worth noting that the EU accounts have not been signed off by the auditors in 20 years. Apparently the accounts have been accurate since 2007, “but they record significant errors in how money is paid, and this has been the case since 1995.” That is tax payers’ money they’re spending!

  • There is huge resentment at the sheer quantity of EU legislation and regulation foisted upon us, interfering in every facet of our lives. The EU’s influence extends to everything from the type of light bulbs we can use, to the banning of high-wattage household appliances. These decisions should be made by individual countries.

  • Over the years a number of EU countries have held referendums and voted against various treaties. The will of the people has either been ignored, or in the case of Ireland and the Lisbon Treaty, people have just been told to go back to the polls and get the right answer. That is unbelievably anti-democratic and would be laughable if it were not so serious.

  • The UK is a very welcoming country which does not have an issue with immigrants or immigration. What is concerning to people is uncontrolled migration from the EU. The UK’s public services have just not been able to cope with the influx over the past few years and there is no way to forward plan for the numbers of people who might arrive, because there’s no way of knowing how many of the EU’s half a billion citizens will decide to move to the UK in any given year.

  • The UK is outside the Schengen area, which means that the UK cannot be required by the EU to take any asylum seekers, although clearly the UK does offer asylum to large numbers of people.

Needless to say, I completely disagree with the assertion that the dissatisfaction spreading across Europe is irrational. On the contrary, it is founded in rationality.

I oould go on and on, but I think I’ve said enough!

Alex

83 Likes
11

Will LGIH … because Britain leaves the EU?

It’s not about the companies but about P/E compression. If everything is down then the dollar is up which helps to compress P/E ratios.

The question is “How long will it last?”

If you have a bullet proof (no debt) portfolio you don’t have much to worry about except for worry itself.

Denny Schlesinger

3 Likes
12

The European parliament

does not run the EU, the bureaucrats in Brussels do.

Denny Schlesinger

2 Likes
13

the way the British Prime Minister is for instance

The British Prime Minister is an elected MP and leader of the ruling party or coalition. He can be removed by the people. Try that with the Brussels bureaucrats.

Denny Schlesinger

3 Likes
14

Talking about irrational: SBNY is a bank lending to small to medium size businesses in the NY City area. That is: SBNY has no exposure to Britain, and their customers probably have no exposure to Britain either. Yet it’s down 4.2% as I speak. (Granted they had risen 5.4% in the past four days, from a beaten down price, but still…it makes no sense).

Just sayin…

1 Like
15

Banks usually benefit from higher interest rates. Likely the FOMC back on hold for the near term at least, maybe longer. Net interest margins down weighs on them. Maybe not so irrational after all?

Rob

2 Likes
16

I did not want to start a discussion about the EU and UK political systems here, but your post seems to be surprisingly popular despite the fact that one can easily check that you are wrong on simple things like how prime minister is not directly elected or what the GDPs of countries are.

So I’ll post one response here, but I’ll refrain from responding any further because I don’t like off topic in discussion boards myself:

Also, the British prime minister is usually directly elected by the people

Please tell me when were the last prime minister elections in the UK.

Appointed by an elected official is not the same as elected

So the Brits should also be pushing for abandoning most of their government institutions, right? And yes, including the concept of PM.

For an overview how the British political system works and just how many parts of it are not directly elected, see https://www.youtube.com/watch?v=ix_i7l_Xhog

With such a large number of EU members now, it is rightly perceived by the people of the UK that it is very difficult to influence EU decisions or hold anybody in the EU bureaucracy accountable for anything.

“Perceived” is the keyword here. Is there any one policy that the UK (either the government or the parliament) could not have defied or tried to renegotiate with the EU.

The citizens of those EU countries have not been living in prosperous times and in some cases their GDPs are smaller now than they were in 2000.

Talking about GDP per capita in 2000 and in 2015 adjusted for inflation :
Spain 15.000 then vs 29.000 now
Italy 20.000 then vs 30.000 now

Source - world bank: http://data.worldbank.org/indicator/NY.GDP.PCAP.CD

There is huge resentment at the sheer quantity of EU legislation and regulation foisted upon us, interfering in every facet of our lives. The EU’s influence extends to everything from the type of light bulbs we can use, to the banning of high-wattage household appliances. These decisions should be made by individual countries.

The quality of EU legislation? Well now I’m interested - give me an example of a low quality EU law - they are all online so you can link them directly. (though as I mentioned above I will not be responding - I’m still interested).

The UK is a very welcoming country which does not have an issue with immigrants or immigration. What is concerning to people is uncontrolled migration from the EU.

Yes, this has been the number one issue the brexiters have been talking about, following the massive scare campaign from the largest tabloids: http://wordpress.mediatel.co.uk/wp-content/uploads/2016/06/D…

I think I’ve said enough!

I very much agree!

25 Likes
17

Stenlis,

I stand by everything I’ve said, but I’m not going to get into political arguments on this board.

Alex

7 Likes
18

Will Amazon sell fewer books and cloud services because Britain leaves the EU?

Saul

Actually, it might have a slight impact on Amazon. I won’t post the comment because this comment from TMFBoiseKen would be on Stock Advisor:

http://discussion.fool.com/1081/amazon-brexit-brief-thoughts-322…

The upshot of that comment without copying word for word would be this:

Amazon planned to use the UK FBA hub to provide access to Europe. So, how that will affect Amazon’s FBA plans in Europe will remain unknown.

I get your point, though, Saul. I think for most US companies, Brexit will not affect things much. Now, if the EU breaks totally up? That might have a lot more of a impact for companies with heavy exports into Europe.

Starrob

1 Like
19

Sure the markets will be down for a day, because they think they are supposed to be. But in three weeks, who will care? Everyone will be thinking earnings season.

That above is what I wrote at the start of this thread. Below is a tiny excerpt from Jeff Fischer, head of MF Pro, showing that I’m not the only one thinking this way:

The shock of this news will wear off, replaced by the tedium of bureaucracy. Investors will return their focus to earnings results, beginning in a few weeks in the United States.

6 Likes
20

“The vote to leave could result in a global recession.”

Or, maybe not . . .

So why did the Brits elect to leave the EU? Does anyone think it was truly the result of policy decisions made in Brussels (or wherever the seat of the EU is)?

I don’t. I think the common man casting a ballot in favor of leaving the EU had to be motivated by something far more immediate and visible. I think two factors played into this vote more than anything else. The first is the flood of Middle Eastern refugees trying to escape war at home. My father was a Holocaust survivor. After being released from a Nazi concentration camp, he managed to immigrate to the US. He didn’t take time to learn the language or the customs. Fortunately for him, there was not a deep cultural trench between Austria and America. And he already spoke a little broken English. It’s not the same for the folks fleeing war-torn Syria, Iraq, Afghanistan, Yemen and wherever else. The UK tabloids have been hammering this issue and the Brits feel threatened.

Add to this huge burden on government services exacerbated by the austere policies of the Conservative government and you’ve got everything you need to create the necessary pressure for a “leave” the EU vote.

Never mind that the vote will have no visible effect for at least two years (other than David Cameron’s resignation). The Brits are frustrated with a government that appears to be insensitive to the plight of the average citizen. It appears that way because in fact it is insensitive. So, when all the experts from the insensitive and unresponsive government line up to tell everyone of the dire consequences of a leave vote is a surprise that the general population spurns this advice?

The advice givers, the politicians and economists and bankers and captains of industry are simply not trusted.

But, in the long run, how will our investments be affected? Unless the OECD nations actually plunge into recession (I consider this very unlikely, but then I’m not an “expert”) I think we will see little impact. We might even see a vote in a year or two to unwind the Brexit vote - We were just joking, actually. Just a bit of that dry British humor . . .

2 Likes