In this media-drenched world of exclamations, superlatives, exaggerations and obscenities, we are inclined to protect ourselves by mentally scaling down the volume and the scope of reports of events and achievements — or the likelihoods of shocking outcomes.
The lead-up to the Brexit vote was one of those experiences. I had only lately come to believe that, in the long run, Britain's leaving the European Union would prove beneficial to the Brits, and might wake up the 'eurocrats' in the EU. Very soon after my “conversion,” the exit contingent shocked the political and financial elites of Europe and the United States by pulling ahead in the polls.
Then, a week before the vote, came the hideous slaughter of Jo Cox, a new star in the British Labour Party, by a mentally unsound loner.
The polls swung back to a lead for what were somewhat bizarrely called “the Remains.” (It turned out to be a prophetic appellation.)
There was never any reasonable doubt that an English exit would be a big blow to the British economy, and a wake-up call to the eurozone.
For months, “the Leavers” had little to make their case except immigration seemingly out of control, and sourness at the elite class of Brussels bureaucrats. The Remains dominated the business and communications classes, so the intellectuals, columnists and business bosses backed the majority of politicians in claiming Brexit would be a disaster.
The British have pride in their past: For centuries Britain ruled the waves, and managed to avoid most of the Continent's wars, protected against invaders by its navy and the English Channel. (One aging officer said, “God gave us this ditch. Why do they keep trying to fill it in?”)
Then, in March, Boris Johnson, a witty, scholarly and winning intellectual Tory politician switched sides, joining the leave camp. He is now ranked as the political phenom who might have brought down Prime Minister David Cameron and changed history.
In the weeks before Ms. Cox's murder, the pound was being pounded and gold was rising again, having risen 16% in the first quarter to be crowned the No. 1 asset class in terms of performance. As of midday June 24, the price of gold in London was $1,318 an ounce, making its year-to-date return 24%.
Near-term, the biggest losers are the economists and business leaders who warned of disaster in apocalyptic prophecies that the general public tuned out. The International Monetary Fund joined in, predicting a non-EU Britain's gross domestic product would be 6.2% lower, or 93.8% of what it would be in 2030 than if the country had stayed. The IMF announcement was ludicrous, because it hasn't gotten one-year GDP forecasts accurate for years. The bettors lost big, betting as much as 5-1 against Brexit. Now, Scotland and Northern Ireland may decide to exit Britain in favor of the EU.
The story now moves to years of bargaining between Britain and EU, and the fallout and recriminations will multiply.
Britain must try to stitch together new ties to an infuriated Europe, which buys 45% of its exports, while seeking far closer trading relationships with the English-speaking allies she has fought beside in past wars.
The United Kingdom will wait to see how much of its banking and finance community in the City of London and its West End decamp — as threatened — to Europe. Late in the debate, France announced it would ensure that England was severely punished for the damage it was inflicting on the European Union directly, and by energizing nationalist upstart parties — some of which are truly toxic. It proposed Paris (surprise!) as the replacement for London as the center of finance and trading. This farrago of bile came when Paris was again shut down by riots — by a far-left union — against very modest adjustments to the extremely generous pensions that are far too costly.
The European Central Bank and the Brussels bureaucrats are in shock. Radical parties in France, Italy, Holland, Poland and Hungary — which protest the immigrant tide, the powers of the ECB and the Brussels committees, and cheered for Brexit — now call for their own version. The euro might soon move back into the emergency ward, putting more upside pressure on the dollar.
The European Union has been China's biggest customer. No surprise that Xi Jinping, president of China, toured Europe encouraging a good outcome in the Brexit debate, meaning a ringing defeat of Brexit. This setback comes at a time when the Chinese economy is being buffeted by bad news from so many directions — external and internal. Time for distraction: China is stepping up activities in the South China Sea with the West bedeviled by Brexit.
Investors should expect more turmoil in global financial markets, and even more issuance of negative-yield bonds from the ECB and other European authorities. Chances of a global recession increase when there are, in the short term, so many economic losers from the shock of l'Affaire Anglaise, with Europe still in the recovery ward from the crash of 2008.
The Fed's chance for a rate rise vanished with the voting result.
Gold and silver stocks will keep moving to new recovery highs. American stocks and bonds will find more global buyers, because the U.S. economy should not suffer painful shocks.
There are — for now — more losers than winners from Brexit. The clearest winners are those who wish to protect Britain's uniqueness and sense of history while paying a short-term price for the privilege. Many British stocks purchased in coming weeks by long-term investors will prove winners.
There are two less savory winners: Vladimir Putin and Donald Trump are smiling.
Donald G.M. Coxe is chairman of Coxe Advisors LLC, Chicago.
