Buying Britain on Brexit
Polls, betting odds, and most economists predicted otherwise, but yesterday the UK people voted 52-48% in favor of “Brexit” – that is, leaving the European Union (EU).1 Tory Prime Minister David Cameron promptly agreed to step down and have an election next October to replace him. On news of the unexpected outcome the British pound and the euro dropped 10% and 3%, respectively, against the dollar. Gold surged 22%. Britain’s FTSE 100 Index declined by 3% and other major equity indexes also fell 3-5%. Sovereign bonds jumped as yields fell. We expect all of this to reverse sharply over the coming weeks. Here, we explain why.