It may be too early to tell, but Britain's vote to leave the European Union, which is more affably known as the "Brexit," may go down in history as the straw that broke the EU's back.
Last week, 72.2% of Britain's 46.5 million eligible voters cast their ballots. In a shocking outcome, 51.9% of them voted in favor of leaving the EU. Financial pundits had been expecting a tight race, but few, if any, had openly expected Britain's voters to choose to exit the EU. With the Brexit now happening, there's a real possibility that other countries could follow suit.
Eight stunning figures that summarize what has happened since the Brexit
With no precedent to what the entire world is now witnessing, global markets haven't taken things well. In fact, the post-Brexit investing environment has been downright ugly for some. Here are eight stunning figures that sum up what's happened in the days that have passed since the Brexit.
1. The big 3 U.K. banks have lost $46.4 billion
In the two business days following the Brexit vote (Friday, June 24, and Monday, June 27), the three biggest U.K. banks -- Barclays (NYSE:BCS), Royal Banks of Scotland (NYSE:RBS), and Lloyds Banking Group (NYSE:LYG) -- shed a third of their value, or about $46.4 billion total. With little clarity as to how long a Brexit might take, or if the Brexit could indeed push the U.K. into recession as some pundits fear, banks are expected to feel the brunt of the uncertainty. Not to mention the Brexit essentially takes any chance of interest-rate hikes firmly off the table, thus eliminating any chance of net interest margin expansion.
2. PIGS were slaughtered
The referendum vote isn't just a potential blow for Britain; it could be even more trouble for some EU nations. With the EU now perceived as financially weaker without Britain, member nations with more precarious debt loads, such as Portugal, Italy, Greece, and Spain -- a.k.a. the PIGS -- could be in even worse shape. During the two-day period following the Brexit, the stock indexes in Portugal, Italy, Greece, and Spain lost 9.2%, 15.9%, 12.4% and 14%, respectively.
3. $3 trillion in global market value was lost
Once more, the Brexit isn't just going to be confined to Britain and even the EU. The possibility of lost growth in Britain and the EU, and the need to rework trade deals, could result in economic instability throughout the developed world. In the two-day period following the Brexit, $3 trillion (with a "T") in market value was wiped out globally. This includes $2.1 trillion in total market losses registered on Friday, eclipsing the previous single-day record of $1.9 trillion in lost market value that occurred on Sept. 29, 2008, when the U.S. Congress voted against a Wall Street bailout. Friday's 610-point plummet from the Dow Jones represented its eighth-largest point drop in history, albeit just 3.4% in percentage terms.
4. We saw the biggest single-day move for the British pound, ever
Currency markets may make large moves over substantial periods of time, but it's often rare to see currencies move more than, say, 1% or 2% on a daily basis. In a matter of hours following the Brexit vote, the British pound versus the U.S. dollar fell from just north of $1.50 to as low as $1.33, marking the biggest single-day move for the pound, ever. Currencies tend to move in step with economic expectations; thus, the plunge in the pound would portend U.K. economic weakness on the horizon.
5. We got a promise of up to $335 billion in U.K. capital infusions
Understanding the unprecedented nature of the Brexit, and the uncertainty it caused in global markets, the Bank of England announced on Friday that it would stand at the ready to pump approximately $335 billion (250 billion pounds) into "normal facilities" to stabilize U.K. markets and financial institutions, if need be. A similar message was heard from the European Central Bank, which added that it was on stand-by to provide additional liquidity, although it didn't list a specific figure.
6. Gold hit a two-year high
While the markets were tanking, flight-to-safety defensive plays were mostly soaring. There's perhaps no more sought-after investment during times of market instability than gold. Having already logged its best quarter in 30 years during Q1, gold wound up bouncing off of its lows of $1,252 an ounce to trade, just hours later, as high as $1,364 an ounce. The move put gold at a two-year high and signaled a discernible shift in investor sentiment. Spot prices have since eased a bit, but gold is still trading near $1,320 an ounce and may have further room to run.
7. U.S. Treasuries came dangerously close to record-low yields
With gold prices rising, domestic investors' appetite for risk has been falling -- fast! U.S. Treasury bonds are often viewed as another safe-haven to park your money because of their essentially guaranteed returns, since they're backed by the full faith of the U.S. government. However, bond prices and bond yields have an inverse relationship. As investors have flocked to buy bonds, yields on those bonds have fallen to near record lows. The yield on the 10-year U.S. Treasury has dipped to just 1.46% and could wind up pushing into record-low yield territory. This would be great for those with debt or a mortgage, but terrible for seniors looking for interest-based income in retirement.
8. More than 3.9 million signatures have been collected requesting a do-over
Finally, in the wake of Thursday's referendum vote, some 3.9 million British citizens have now signed a petition requesting a do-over vote. Keep in mind that this petition was begun back in late May. The British Parliament is required to debate petitions that gather more than 100,000 signatures, but a second vote appears unlikely at the moment, unless anti-Brexit sentiment swells and global financial markets take a beating.
It's certainly been a rough go out there for investors, but the only statistic you need to keep in mind is that out of 35 stock market corrections since 1950, every single one has been wiped out by a rally of some sort within a matter of weeks, months, or, in some cases, years. Buying with regularity when we're off our highs has worked out well for long-term investors for decades, and I don't see that pattern changing anytime soon.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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