Troika on the Brexit vote
You could cut the tension with a knife this week in the lead up to the Brexit vote. “Will they or won’t they?” Analysts seesawed back and forth in their predictions. Market disruption is the element in which the best global traders thrive. But Britain’s decision to leave the European Union left many gob smacked.
Despite the sense international business has entered a new phase, we’ve been here before. “Things fall apart; the centre cannot hold; anarchy is loosed upon the world,” wrote the Irish poet William Butler Yeats in “The Second Coming.” The 1923 Nobel Prize winner was describing the horror of modernity, tribal violence and the sense of living in end times. The whiff of World War I hung in the air and the brutal suppression of the Irish Easter Rising was still fresh.
Yeats’s words echo this week in dire predictions about the aftermath of Britain’s vote to withdraw from the EU. The international share market shed over $2 trillion in the first 24 hours. The British pound plummeted to the lowest level in 35 years.
The fallout is far from over. Billionaire Investor George Soros has sounded a warning that Britain’s vote to leave the European Union makes the disintegration of the bloc “practically irreversible.” He projects the pound will take a pounding and may lose a further 20 percent of its value before bottoming out. Soros thinks Brexit is the beginning of the end for the European Union. And he observes circumstances are much less benign now than in 1992, when he pocketed a cool billion betting against the British currency. One reason is the Bank of England has less room to cut interest rates to absorb the economic shock, because rates are already low. The contagion may spread because foreign ownership of British debt is at an all-time high.
So what does this mean for businesses in the rest of the world—in Australasia and the U.S.?
While the medium to long-term effects are hard to predict, one view to emerge is that the greatest threat is psychological. When fear permeates the world economy, stock markets react accordingly. Investment dries up. Credit tightens and innovation freezes as companies put off venturing into new technology or expanding into new markets. Are we in for a global retrenchment in the order of the 2008 Great Financial Crisis?
But all is far from lost, say some analysts. Among them is Nobel-prize winning economist Paul Krugman, who believes the fallout from this political and economic earthquake may be overblown. For one thing, Britain’s exit terms have yet to be negotiated and will take time.
All eyes are on Brussels, which must staunch the haemorrhaging of support for dissolution from spreading to other EU members. Support exists among countries like Germany to make an object lesson of Britain, not just in the name of preventing healthy economies from leaving but also to strike a blow against irrational xenophobia, which is bad for business.
The timing is excellent to take a breather and reflect before acting. In markets like the U.S. or Australia, Brexit’s effects may create opportunity in volatility. Some analysts suggest a minor global downturn may result in an economic stimulus package from China, which will help those with close ties to their market.
If you’re a small- to medium-size enterprise contemplating pivoting your business, nothing could be more timely than cool-headed deliberation. Take stock. Ask hard questions. Then develop a well-researched plan and strike before opportunity is lost. Sometimes the greatest risk is taking no risk at all.
Investors long in the tooth will tell you the best time to buy blue-chip stock or property is after a market correction. It can also be an excellent time to step up your business’s game while competitors dither on the side lines. With the correct strategy in place, speed kills.
How does a company know when to brave heading into the storm or to withdraw and seek shelter? Only by asking hard questions, researching strategies and war gaming outcomes, then considering allowable loss versus the potential for big gain.
And that’s when you turn to a strategy firm like Troika. We have the entrepreneurial spirit hardwired into our DNA. Our team of consultants is handpicked from the ranks of seasoned business professionals who have all started, grown and pivoted businesses. We’re comfortable looking beyond conventional wisdom, asking hard questions, and casting a clear eye onto the life and death of business trends. Change is indeed the only constant. We’re here to help clients ask themselves what their core strengths and weaknesses are and to think deeply about their vision for the future. Then we’ll help you develop strategies to win, metrics to chart progress, and marketing tactics that will put you in front of your customers and competition. And once we’ve developed a game plan together, we’ll back you to the hilt.
So if you’re looking for opportunities while others sit on the side lines, call us today.By Jim Wilkes & Casey Cravens