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How to Handle Brexit

By the time you read this article, you will probably be sick and tired of the word Brexit. If you are like me, you probably spent the weekend hearing friends, family, and Facebook bemoaning the journey that one of our closest geo-political allies is about to embark on.

I am very sensitive to the fact that there is a great deal of information out there, so instead of offering another opinion of whether the vote to leave the European Union (EU) was good or bad, I am going to attempt to offer some perspective on the economic ramifications of Britain's new reality.

The first, and most important, piece of perspective I can offer is that nothing that happened in the Market on Friday or today sheds light on the long-term implications of the Brexit vote. Remember, immediate market losses are an emotional reaction and nothing more. They do not represent real changes in the value, do not signal the changing of the wind, and most importantly, do not represent a good time to sell all of your investments and hide under your bed. It is ok to worry, but if you start selling your investments, you will likely regret that decision one day. Just ask the people who sold their investments when the markets plummeted in January, only to see it bounce back (and more) by the end of the first quarter.

The other (REALLY) important thing to remember is that at this point, all we have is speculation. We are a long way off from understanding the full effect of Great Britain leaving the EU.

Consider this. Nothing that has happened as of yet is legally binding. That's right, the Brexit vote does nothing more than set a very long process in motion. In order for this thing to actually play out, the British government must first officially inform the EU of their intention to leave. Given that Prime Minister David Cameron has officially resigned and called for a new election, that is likely to take some time.

Best estimates are that it could be another five years before Great Britain is really off the EU ship. Trade agreements need to be worked out, tariffs decided on, border controls agreed upon, and now there is a real push for a second referendum on the matter (though it is hard to imagine a justifiable scenario where what has happened can be undone). Until everything is worked out, Great Britain is decidedly part of the EU, so everyone just needs to cool their jets. It is not time to brace for impact yet.

There is also the possibility that Great Britain will cease to be a member of the EU, but will take on an EU-lite persona, much like Norway. That is, they will pay EU dues to enable access to the single market and in return, guarantee the free passage of workers from EU member nations. Given that there is seemingly some buyer's remorse going on with the "leave" campaign, this idea may gain some traction. It will be interesting to see how this plays out, considering the concessions that Great Britain would likely have to make in this scenario are the exact reasons that people voted to leave.

Make no mistake about it, the Brexit vote is seismic in its message, if not in its impact. It would be foolish to believe that the aftershocks won't stretch around the world, and even more foolish to believe that the extent of those aftershocks has been felt in the days since. Sure, markets all over the world are down. U.S. markets saw most, if not all, 2016 gains wiped out with the push of the Brexit button. But that is NOT the story here.

What is the story? I would contend that the bigger issue here is general dissatisfaction with the status quo and the economic implications that discontent creates. Whether here or overseas, it is hard to deny that there is a major shift going on. We see it here with the rise of Donald Trump and Bernie Sanders, and are seeing it now in Great Britain. And with countries like France, Germany, Spain and others considering similar referendums and potentially similar exits, I daresay we have not seen the end of it.

Like I said, seismic. We just don't know how yet. What we do know, or can at least feel pretty confident of, is that the global economy will figure out how to live in whatever new normal is created. It always does. In the meantime, the rollercoaster might get a bit bumpy as the world decides what it wants to be when it grows up.

In short: Don't panic. Stay the course. Keep calm and carry on!



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