On Brexit, Will Brits Come To Their Senses?

I suppose in some ways I should be pleased that my mother country will be the center of attention from a market perspective this week. Great Britain is, after all, a small island nation about the size of Florida, with a population of just over one fifth that of the U.S., so prominent news coverage is not a given.

Historic importance and an outsized role in global finance ensure that Britain is not ignored, but the kind of day to day coverage that we have seen for the last week or so is rare. What tempers my joy at hearing regular news from Blighty, though, is what is causing the coverage. This week the country will vote on whether to remain in the European Union, or leave.

From afar, and from the perspective of somebody involved in financial markets, the fact that this is even close is, quite honestly, a little embarrassing. I like to think that, when all is said and done, people are rational and make decisions that serve their interest. That doesn’t mean that they can’t show compassion, or that that interest isn’t a collective one. It simply means that when one path would result in economic harm, it would be shunned.

What we are seeing though, as the referendum draws near (the vote will be this Thursday, June 23), is that there are a substantial number of people who will vote to leave the European Union, despite the conclusion of almost all major, international economic studies that to do so would be damaging, not just to the British economy, but also to Europe and, by extension possibly the rest of the world.

Those campaigning for a “leave” vote seem to focus on a few things such as immigration, regulations, and a vague concept of sovereignty, while ignoring the potential for real economic damage.

Whether we like it or not, we live in a globalized world of large trading blocks, and leaving one of those blocks to go it alone is to commit a slow form of economic suicide. The motivations of those that advocate for leaving are mixed; some are to do with fear: fear of the big bad E.U. bogeyman or, somewhat more sinisterly, fear of hordes of refugees coming to the country. I suspect, though that some is also a result of something that affects many of my countrymen - a tendency to live in the past.

They think that we are still in the era of Britain’s greatness. They are shocked when the national soccer team loses and somehow manage to forget that they haven’t won anything since 1966. They believe that the U.K. is still a manufacturing powerhouse despite the fact that no such thing really exists anymore.

The world has moved on to where cooperation is a far better route to prosperity than domination, but many still retain the image of the small island nation that ruled half the world and dominated world trade, ignoring, of course, the brutality and suppression used to reach that status.

The latest polls showing a swing back to a lead for the remain campaign should come as a relief, I guess, but we are still within a reasonable margin of error, and the only real conclusion that can be drawn is that the vote will be extremely close. My instincts tell me that logic and economic rationality will prevail, but the Dow up around 200 points this morning in response to a poll that essentially says nothing new looks overdone.

Even if Britain does vote to remain, that doesn’t mean that everything is rosy for U.S. stocks. You still have a situation here where high valuations are butting up against weak data and Q1 earnings that were down year on year. That is not a recipe for a booming stock market, and gives me pause regardless of whether or not my fellow Brits come to their senses on Thursday.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Martin Tillier

Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.

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