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Brexit Will Ultimately Mean Little to Global Economy

Brexit Will Ultimately Mean Little to Global Economy
(Stock Photo Secrets)

By    |   Tuesday, 05 July 2016 03:41 PM

In the popular movie "A Beautiful Mind," Russell Crowe plays Nobel Prize winning economist John Nash. In a scene in the movie, Nash reveals the key to picking up women in a bar. He advises his friends to “ignore the blonde” and settle for the less beautiful and attainable women rather than failing to win the attention of the most beautiful women they see.

Wall Street analysts, traders and money managers don’t seem to have watched this movie. They tend to focus solely on the most beautiful object they see. They tend to agree more often than we expect them to, most likely because of career risk. Being wrong on Wall Street is OK as long as everyone else is wrong. That’s why everyone tends to miss near markets.

Losing money in a bear market isn’t likely to get anyone fired.

It’s as if everyone would rather complain about a disappointing night out at the bar rather than settle for a perfectly enjoyable evening with partners that are slightly less than perfect in the eyes of their friends.

Groupthink like this is the reason Brexit caused a short-lived market selloff as economists and the Bank of England warned a recession was unavoidable. Analysts at Standard & Poor’s are now providing a counter argument.

Brexit has led to a drop in the value of the British pound. S&P points out that a cheaper pound will make exports more attractive and reduce the odds of a recession. The research report also assumes negotiations will result in an exit that allows Britain to continue trading with the European Union under almost the same terms in place today.

In other words, S&P expects the outcome of Brexit to be rational rather than catastrophic. As negotiations continue, cooler heads are likely to prevail. Britain will soon be negotiating with 27 countries. The deal won’t be the best and it won’t be the worst. It’ll be a deal that is in the middle of possible outcomes.

In negotiations, Britain is in a bar with 27 potential partners. Nash has told us how it will play out. The deal will be the one that’s minimally acceptable to all of the parties involved.

S&P confirms the outcome will be far from the best case and far from the worst case. The global economy will continue to muddle along and in the end Brexit will mean little.

Michael Carr, CMT, is a subadviser to a mutual fund family and a chartered market technician. To read more Michael Carr, CLICK HERE NOW.

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The global economy will continue to muddle along and in the end Brexit will mean little.
brexit, invest, markets, money
Tuesday, 05 July 2016 03:41 PM
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