The “Big Game” is Over. Who Won?

That’s a tough one.  Hard to say, really.  

On one hand, clearly, the BRexitians won the day.   The UK is now likely to leave the EU.  Which suggests their opponents, the BRemainers, lost.   They most certainly did.  But I contend both teams lost this one.   In fact, everyone in the UK lost – and lost big.

The rest of us lost too.  But in a different way.   Notwithstanding all the issues unique to England – where the fervor to leave the EU was overwhelming – this outcome makes the world a little less safe than it was the day before.  Why?

Because with this vote, the nationalism of the xenophobic rabble across the English countryside slightly, just barely, edged out the sanity of the status quo.   Clearly the populist wind blowing across all developed nations today, causing the acute culture clash between the NIMBYs and the ‘newbies,’ is blowing even stronger in England.  Immigration issues, policies and problems are at the core of this emotionally charged debate.  Apparently the sheer weight and speed of the influx is overwhelming both systems and sensibilities.  Across the countryside, anger reigns supreme.

Viewed from the ‘bigger picture’ perspective, this outcome suggests emotion has ruled the day, that the sweeping immigration changes in the EU came to big and too fast – at least from the perspective of older folks who don’t just dislike the changes they’re seeing, feeling – they HATE the changes.   Apparently that hatred has now boiled over to the point where the UK, with this referendum choice, has made a very, very stupid economic/financial decision, not with their minds but with their angry, fearful hearts.  A decision that will cost them dearly in the days, months and years to come.

From both a financial and security perspective.   Security because the xenophobia driving this choice breeds anger and distrust, which grows over time, sometimes causing countries to make bad decisions.   Like, say, “Hey, why don’t we drop a bomb on those guys?   We don’t like them, they don’t like us, and maybe we can wipe them out and let us take their stuff!”   Yes, a bad decision like starting a war.

OK…perhaps I’m over reaching a bit here.   Agreed.   But no matter how we look at it, today’s outcome is tear in the fabric of the EU.  An economically aligned European Union is a safer EU.   When unaligned, odds of a dispute increase.  History is replete with centuries of examples.

Could other countries follow suit?   Sure.  There’s no shortage of anger in Spain, France, Italy, etc.   Nationalism and isolationism are the political topics de jour.   So we have to keep our eyes on the potential contagion spreading across other EU countries.   I admit I was surprised by this outcome.   I felt cooler heads would prevail.   Apparently not.

But the other countries in the EU are much more deeply entwined.   They share physical borders.  Most of them share a currency and a central bank.  I will be absolutely floored if this contagion spreads to other EU members.   Over the next few months, if they pay attention, they will see the dismal aftermath of this choice.   They will see how all of England just became poorer.   We’ll see.

I really hate to sound so negative.   So lets shift gears.

How about a silver lining?  Here’s one:  This really stupid move will solve the UK inflation issue!    WooHoo!   I predict the inflation rate will increase across England … probably beyond the 2% target rate.   Why?

The English Pound is devaluing against the currencies of its largest trading partners – the EU and the US.  Which means their imports just became more expensive.   What do they import?  Per tradingeconomics.com:  “The United Kingdom mainly imports machinery and transport equipment (36 percent); miscellaneous manufactured articles (16 percent); chemical products (12 percent); mineral fuels, lubricants related materials (9 percent) and manufactured products (8 percent).

U.K. main import partners are: Germany (15.1 percent), China (9.2 percent), United States (8.4 percent), Netherlands (7.6 percent) and France (6 percent).”

In all, the UK receives about 30% of the goods and services it consumes each year from the rest of the world.   And that stuff just got more expensive.   By how much?

Well, today, the Pound is down over 5% against the Euro.   And it’s down over 7% against the USD.  It’s been slipping against the USD for quite a while.   And I suspect it will get worse still (click to enlarge):

As I write this BLOG, the English Pound is down to $1.37.   In the aftermath of this vote, I suspect it will continue lower.

So, if we’re looking for a clear winner, I think we can find one here:   You!

Yep, you!  England is on sale this summer!   Their loss is your gain!   Head across the pond and buy a house or two!   At the minimum, pick up some bangers and mash!

In 1942, Winston Churchill gave an iconic speech.  It’s one of my favorites, one I often quote and/or paraphrase.

He said he’d heard people suggesting the war with Germany was going better.   England seemed to be winning.   He commented to the audience:

“The fight between the British and the Germans was intense and fierce in the extreme. It was a deadly grapple. The Germans have been outmatched and outfought with the very kind of weapons with which they had beaten down so many small peoples, and also large unprepared peoples. They have been beaten by the very technical apparatus on which they counted to gain them the domination of the world. Especially is this true of the air and of the tanks and of the artillery, which has come back into its own on the battlefield. The Germans have received back again that measure of fire and steel which they have so often meted out to others. Now this is not the end.  It is not even the beginning of the end.  But it is, perhaps, the end of the beginning.”

While that was true then, I don’t think it is today.  This is the beginning of the end for the UK – as a financial and economic leader.   Unfortunately, with this poor choice, British financial hegemony will reach a new low.    And the long-term outcomes from BRexit – for the very people who voted for it with rapture and euphoria – will be very different than they expected.   And not in a good way.

• Terry Liebman