What the Aftermath of Brexit Tells You About Expert Opinions
On June 23, the United Kingdom unexpectedly voted to leave the European Union.
Supporters went to bed late into the night thinking that the “Brexit” vote had failed. But they woke up the next morning to find that the campaign had succeeded.
By 9:00 am that morning, British Prime Minister David Cameron had fallen on his political sword and submitted his resignation.
Global stock markets sold off sharply. Both George Soros and his former Quantum Fund partner, Jim Rogers, opined that Brexit would unleash a financial crisis of Biblical proportions. With barely concealed Schadenfreude, mainstream pundits crowed that Brexit signaled the dissolution of both the United Kingdom and the European Union.
What’s Happened since Brexit?
With the post-Brexit sell-off now a vague memory in the minds of most U.S. investors, it is worth highlighting what has happened since that fateful day in late June — and what lessons you can draw for the future.
Three months after Brexit, the United Kingdom’s stock markets are trading above their pre-referendum levels. After falling by about half of the 20% predicted by Goldman Sachs, the British currency has stabilized. Last week, Britain’s Office for National Statistics conceded that the Brexit vote had not had a significant impact on the United Kingdom’s economy.
That is a long way from the “DIY Recession” George Osborne, Britain’s now former Chancellor of the Exchequer (the equivalent of the U.S. Treasury secretary), promised voters if they voted for Brexit.
Osborne was not the only expert who had to eat crow.
The International Monetary Fund (IMF) admitted that its fears of significant market turmoil and short-term damage to the U.K. economy post-Brexit were overblown.
U.K. manufacturing bounced back in August. Retailers in London are enjoying a record year, thanks to the weak pound, growing by 1.5% over the third quarter as a whole. Viewings of prime London properties have soared as foreign investors look to take advantage of a weak British currency. The Organization for Economic Co-operation and Development (OECD) just raised its estimates for growth in the U.K. economy from 1.7% to 1.8% this year.
Why the Experts Are ‘Never Wrong’
Much like gold bugs who cheerfully predicted $5,000 per ounce gold after the Great Recession, Brexit doomsayers will never admit they are wrong.
They are just early.
Doomsters view pro-Brexiters cheering their decision much like someone jumping off of the top of a tall building. After one second of free-fall, they say, “See? Nothing bad has happened after all!”
They rightly point out that Brexit has yet to happen. After all, the United Kingdom officially has yet to trigger Article 50 of the European Union’s Lisbon treaty to even begin Brexit negotiations.
The British leaders point out the U.K. economy is already fraying at the edges, with investment and employment numbers less stellar than surprisingly robust retail sales numbers. Before Brexit, the Bank of England had forecast economic growth of 2.3% in 2017. But the nation’s central bank now expects just 0.8% growth — despite the OECD and IMF backtracking on their estimates.
Moreover, top U.S. investment banks just sat down in New York with Britain’s new Prime Minister Theresa May and renewed their threats to take jobs out of the United Kingdom if it pursues a “hard” Brexit.