Cameron opens Pandora’s Box
David Cameron’s decision to invite the British people to vote on membership of the EU has, without doubt, blown up in his face and has opened Pandora’s box. In Greek mythology, Pandora opened the box and released all the evils into the world leaving only hope when she closed it again. Today this expression describes a small act unleashing unimagined consequences and this is where the UK, Europe and indeed the world are now situated.
Since Friday we have been bombarded with opinion pieces seeking to tell us what “Brexit” will mean. But the simple truth is … Nobody Knows. Will the Scots veto it – apparently they can? Will the UK parliament ignore the referendum – legally they can? Will the petition currently being promoted gain sufficient momentum to force parliament to call a second referendum? … Nobody Knows.
If Brexit does indeed proceed, will it happen quickly as the Europeans want or will it go slowly as Boris Johnson undoubtedly wants. Indeed how will it proceed and what will the final version look like? … Nobody Knows.
So where does this leave us? Firstly it is important to remember that very little has actually changed. The world’s economies carry on and indeed there were some quite encouraging numbers out of Germany and France last week. Probably the only effect to the real economy is the impact of uncertainty on currencies and in particular the UK pound which has fallen significantly against all major currencies. The real impact of this, if it continues will be to make British exports much cheaper. The greatest impact is from uncertainty.
Uncertainty will cause businesses and governments to think twice about capital spending. For us, most significantly, uncertainty affects investment markets. We have seen share prices fall on Friday though the US S&P 500 has only retraced to where it was 5 weeks ago and the ASX200 is back to where it was in late April. We will see volatility over the next few weeks and months and we shouldn’t forget that we have an election this week and the US has one in November. Uncertainty and volatility in asset prices will be with us for some time.
As investors you need to focus on fundamentals – both in economies and markets. If you are in the income phase you should focus on the underlying strength of assets you own. If you are in the accumulation phase uncertainty may give you some buying opportunities.
The tragedy for all of us is that politicians all over the world are failing to show real leadership which gives the populists scope to ramp up their empty rhetoric which in turn leads to situations like Brexit.
Finally, because we probably need cheering up, here is a clip from a 1980 episode of the British TV series “Yes Minister” – Life imitates Art!
