Market movement following vote of Brits to exit EU is not a financial crisis

David Goldman:
Contrary to all expectations, including last-minute voter surveys, Britain voted to leave the European Community by a margin of 52-48, or more than 850,000 votes, BBC and Sky News forecast at 5:00 a.m. Greenwich Mean Time. Midnight trading in financial markets produced record swings in currency and security prices, with gold up nearly $100 just before 5:00 a.m. and the British pound trading at just $1.33 to the dollar, down from $1.50 before the voting began.

This is NOT a global financial crisis. The hissing sound you hear is the air leaving various financial bubbles, but this is not 2008 all over again.

The British corporate sector has a strong balance sheet. Among the companies in the FTSE 100 equity index, net debt is only twice earnings before interest and taxes, slightly more than the S&P 500. Italian companies by contrast have net debt at nearly 8 times earnings before interest and taxes. The record fall in the pound sterling brings its exchange rate against the Euro to precisely where it was in 2014, before the pound rose against the European unit along with the US dollar. It’s a long-need correction that will benefit the British economy, which has suffered from an overvalued currency.

Financial authorities around the world warned of dire consequences were Britain to leave the Euro, but it’s hard to see what these might be. Britain’s auto industry is mostly owned by German companies, who will not stop producing or buying cars made in their British plants. The 2008 collapse had already cleaned most of the fluff out of the City of London, which shed more than 130,000 jobs in the years after the crisis. The global ambitions of European banks are long since gone and it is unlikely that a great deal of financial business will leave the already-shrunken City.
There is more and it is worth reading in full.  Goldman is one of the best analyst in the business.

Some investors will see opportunity in the market movement and take advantage of it.  The fundamentals of the British economy are pretty sound and it is the EU that is weaker as a result of this move.


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