Britain’s decision to leave the European Union sent new shockwaves through financial markets on Monday, with the pound falling despite the country’s leaders’ attempts to ease political and economic turmoil unleashed by the move.

But sterling later sank to its lowest level against the U.S. currency for 31 years, continuing the fall that began last week when Britons confounded investors’ expectations by voting to end 43 years of EU membership.

This put the pound, and European bank shares, on course for their biggest two-day slides on record.

Chinese Premier Li Keqiang said uncertainties over the global economy had heightened and called for a “united, stable EU, and a stable, prosperous Britain”.

Russia is pleased to see the European Union weakened and China is concerned that business as usual will suffer. The USA is losing its best and strongest link (through the UK) to Europe. There will be lots of problems in the wake of this decision but how will the Brexit vote affect your investments?

Investments in British Stocks

The first level of concern is if you have investments in British stocks. As we noted in our article, How to Invest in British Stocks, the Brexit could end up helping British manufacturing by reducing the value of the pound and making British exports more competitive.

The Guardian thinks Brexit would help UK manufacturing because it would do away with high EU tariffs.

There is a reason why our internationally competitive manufacturing companies such as JCB and Dyson support Brexit. To survive and compete the UK has to expose itself to international competition and needs to focus on selling into the fast growing markets of the future.

The alternative of remaining protected behind the tariff wall and regulations of the EU makes companies flabby and less competitive in global markets. Yes, there are many big firms who want to remain in the EU. Not only do those big firms have the ability to lobby Brussels but they all too often focus on the short term and their next quarter’s results.

A weaker pound would help UK exports and perhaps a reduction in trade regulations might also be useful.

Effects of Brexit on the US Economy

Time writes about why Brexit is a big deal for the US economy.

Politicians and technocrats of all stripes are trying to reassure Americans that Britain’s vote last week to leave the EU won’t affect them economically. They are wrong.

Brexit has already caused a number of dominos to fall. Scotland and Northern Ireland, frightened of being cast adrift from Europe, may vote to leave the U.K. in order to stay in the European Union. Far right wing voices that were already gaining steam in places like Germany, France and the Netherlands have been emboldened. Politicians in the latter two countries have already called for an exit vote.

The angry unthinking populism that has been infecting politics in the UK is active in Europe and in the US as well. Businesses like stability and the “throw the bums out” approach of Trump and others comes with no clear and proven path to a better world. How the Brexit vote will affect your investments in the US may be badly. The dollar is likely to rise as a safe haven so increasing the cash position until things become more clear may be the best approach.

How Will the Brexit Vote Affect Your Investments? PPT

Deflation

According to Investopedia deflation is:

A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression. Central banks attempt to stop severe deflation, along with severe inflation, in an attempt to keep the excessive drop in prices to a minimum.

The risk of deflation is that producers continually reduce prices in order to maintain market share. This damages businesses running them into bankruptcy and puts people out of work. Deflation discourages investment because investors tend to simply hold on to cash which increases in value as prices go down and property and other physical assets decrease in value. During periods of deflation banks often charge a small interest rate to hold money in a checking or savings account! So cash is in effect a deflation era investment. What are some others?

Deflation Era Investments

The Wall Street Journal published an article, How to Invest for Deflation. Here are a few do and don’t suggestions.

• Do not make big purchases with long-term, fixed-rate loans as you will be paying for a long time for a depreciating asset.
• Do not invest in consumer-good stocks as their ability to raise prices is limited.
• Do not invest in highly leveraged companies.
• Do invest in high-quality companies that have had long histories of paying high dividends.
• Do invest more in high-quality corporate bond and municipal bond mutual funds.
• Do buy certificates of deposit – but avoid getting stuck in a long-term CD so you can be ready to pounce on the opportunity to enjoy higher interest rates when inflation inevitably returns.

A basic aspect of deflation era investments is just when you believe that the economy will correct itself. If you believe that, like with Japan, the deflationary era will last decades you simply want to hold cash, short term bonds and stocks that return cash to you every quarter by way of dividends. If you want to capitalize on a turnaround you need to do your homework and pay attention.

When Will Oil Go Back Up?

The price of oil will go back up when consumption rises. Consumption will rise when the major economies get healthier. The U.S. Energy Information Administration lists nations by millions of barrels of oil consumed each day.

• United States (19.0)
• China (10.3)
• Japan ( 4.5)
• India ( 3.5)
• Russia ( 3.5)
• Saudi Arabia ( 3.0)
• Brazil ( 3.0)
• Canada ( 2.4)
• Germany ( 2.4)
• Korea, South ( 2.3)
• Mexico ( 2.0)
• Iran ( 1.9)
• France ( 1.8)
• Indonesia ( 1.6)
• United Kingdom ( 1.5)
• Italy ( 1.3)
• Singapore ( 1.3)
• Thailand ( 1.3)
• Spain ( 1.2)
• Australia ( 1.1)

Japan is in and out of recession and Chinese industrial production is cooling off. The European Union is having a hard time getting going after the recession due to its addiction to austerity measures. Brazil’s stellar growth has gone south and Russia is suffering from sanctions due to their adventurism in Ukraine. The sum total of consumption by these nations each year is 28.5 million barrels a day. When these nations pick up economic steam it will time to depart from deflation era investments and look an inflationary future.

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