Dear All,

The economic landscape of Europe just got a serious makeover (the mother of all Titchmarshes).

The U.K. will leave obviously, but the next question will be who’s possibly next and will this be the moment that the EU experiment starts to unravel? There are a number of other member countries facing overwhelming popular calls for their right to choose to go it alone a la the UK (not sure if I’m allowed to use euro phrases now?).

It is clear that the growing disparity in wealth and confidence in Western countries between the ‘haves’ and the ‘have much much less’, accelerated by the financial crisis, is increasingly producing political uprisings.

The US is possibly the most obvious example currently, with Donald Trump gaining huge support for his ‘kick ‘em out or don’t let ‘em in, build a wall and do it all ourselves’ message.

He may be derided as a joke by the political and social elite but democracy is ‘one person, one vote’ and the elite are only the top 10% of a country, although they control over 90% of the wealth.

What we are seeing is democracy at work and the reason why we no longer have civil wars; the voices of all the people heard equally, and many are angry and engaged, and they are now speaking loudly of their dissatisfaction with things as they are (or were in our case as of this morning).


We gave considerable thought as to whether we should reposition portfolios in case of a Leave vote as markets in such a scenario would fall, as would Sterling. Our view was that the vote was too close to call and that most importantly the fall in Sterling, should we exit, would mitigate to some extent the loss in equity values. The Pound is currently down around 8% against the Dollar which is an 8% gain for a UK investor and it is down similar amounts against most major currencies. If the US portfolio holdings fall 4% and the pound stays where it is now that’s a 4% gain in aggregate, so the currency is hedging out the equity loss and producing a profit. This is not going to insulate portfolios in total from losses as the UK holdings are significant (about 20-25% ) but it will go a fair way to doing so.


Anyone who now is predicting how the next month or even several years will play out is frankly just guessing.

Many will remember the dire warnings of economic decline if we didn’t join the Euro and the huge volatility when we exited the ERM (stopped the pound shadowing the Deutschmark). We came through both with short term volatility but without permanent harm, and having a lower Pound now will help UK exports. In a world where central banks are all trying to lower their exchange rates we’ve just hit a home run in that regard!

This may indeed turn out to be a far less damaging decision than may be feared, if Europe gradually fragments as could quite possibly be the future scenario even if we had voted Remain.

What we know from history is that stuff happens, sometimes really bad stuff but it corrects in time and new and sometimes surprisingly positive outcomes flow from very unpromising beginnings.

Even Euro supporters acknowledge that the Union has a number of structural flaws and maybe this is their wake up call to make the very necessary changes to stimulate growth and acknowledge diversity and sovereignty?

It will be telling not only to see how the EU decides to react both internally but also in terms of its dealings with the U.K. It is indeed a genuine concern that to discourage others it adopts a very hard line stance in negotiating new agreements, this could indeed be a nasty and messy divorce.

It is perhaps telling as a final observation, that the German and French markets this morning are down more than the FTSE 100; and Spain and Italy by double the amount, possibly foretelling where the big future uncertainty lies.

Note: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.