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What Brexit Means To Your Portfolio

Portfolio

Here is the quick and dirty on the UK’s exit from the European Union and what it means to American investors:

The markets will be volatile.

This morning the VIX, which measures the volitility is S$P 500 futures, is at 4 month highs according to the CBOE. Generally when the VIX is above levels of 25 or more it indicates a high degree of selling in the markets. For long term contrarian investors this is generally seen as a bullish (good) sign as investments become cheaper offering better buying opportunities.

2016-06-24_VIX

The markets may go lower in the short term.

See above. Long term investors will be presented with buying opportunities.

Companies that have large operations in the UK will be affected.

Companies that do business in the UK will be affected. Starbucks (SBUX) for instance has about 840 stores in the UK. Experts agree an exit by the UK from the EU has depressed the British pound to its lowest level in 31 years. Experts also agree Britain may also suffer a recession due to the move. It will be a much tougher environment for Starbucks to sell coffee in the UK during a recession. And when it does sell, its patrons will be buying with depressed British pounds. The upshot is, those 800 stores only represent about 3% of Starbucks’ stores. Any negative impact should be negligible.

The British economy will suffer if immigration is negatively impacted.

This might be a lesson for us here in America. Immigration helps economies more so than it puts pressure on economies. Overwhelmingly immigration (over the long term) serves to both create consumers for products and services and fill jobs that need to be filled. The UK has benefited from the open movement of migrant workers throughout the EU. The chart below demonstrates the employment rate in the UK.

uk employment

If Trump’s anti-immigration America is to come to fruition, it could threaten the US economy in a similar fashion.


Markets

Brexit 101: What just happened, and why it’s important for Americans by CNBC

Brexit: what happens when Britain leaves the EU by Vox

Brexit Explained by Vox


Disclosure: I and the clients of Brick Financial Management owned shares of Starbucks (SBUX) at the time of this writing.

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