Perhaps, as my colleague Jim Collins wrote, this is not the time to bottom-fish following the U.K. voted to leave the European Union.
As Jim Cramer writes, it's time to go domestic (if you are in the U.S., that is), as there are few other safe havens right now. The U.K. has lost its own safe-haven status -- at least for the foreseeable future.
After the Brexit vote, we saw the pound fall to its lowest level vs. the dollar since 1985. It recovered a bit after Bank of England Governor Mark Carney came out with a statement saying the central bank stands ready to employ its liquidity facilities in sterling and foreign currencies "to support orderly market functioning in the face of any short-term volatility."
One bet that looks pretty safe at this point is that the pound will not recover its former glory anytime soon, if ever. George Soros had warned of depreciation of around 15% if not more, and the pound had lost about 10% from the highest level it reached when markets were speculating that the Remain campaign would win.
With the U.K. importing a lot of food and consumer goods, inflation is likely to take off because of a weaker pound, affecting purchasing power and possibly knocking down consumer confidence.
Another big problem that the economy faces is the wide current account deficit of the U.K. -- around 7% of GDP. As Carney once said, the U.K. depends on "the kindness of strangers" to keep investing to provide the capital inflows that sustain such a big deficit. With the country's safe-haven status brutally shaken by today's vote, it is more likely that foreign investors would move funds out of Britain rather than in.
Portfolio investment flows into U.K. bonds and stocks last year were around 270 billion pounds ($372 billion), representing around 14% of GDP, according to Viktor Nossek, director of research at exchange traded products (ETP) provider WisdomTree Europe.
"It is unlikely that foreign investors will be as enthusiastic to allocate into gilts and FTSE All-Share companies to that degree," Nossek said after the vote.
This is because the process of leaving the European Union will be a protracted and uncertain business. Prime Minister David Cameron resigned earlier on Friday and said a new Prime Minister, who will have to be elected by the Conservative Party before its national assembly in October, should notify the EU that Britain wants to withdraw and start procedures.
Under Article 50 of the European Union Treaty, negotiations of terms and timetables for new trade agreements can take a maximum of two years.
"Combined with no reference for an alternative trade model to fall back to, it means undeniable uncertainty for a considerable amount of time and, until the dust settles, would compel asset allocators -- at least in the short term -- to consider reducing their U.K. exposure or refrain from asset allocating into the U.K. altogether," Nossek added.
The Bank of England could, of course, raise interest rates to try to mitigate the effect on the pound and encourage investors back into pound-denominated assets. It also has a mandate to fight inflation, so if prices increase too much due to more expensive imports, this would be the right step.
But the central bank would not find it easy to do so. House prices have seen big increases lately, and many homeowners have big mortgages that they would find it hard to service. Others have bought a multitude of properties to rent out on mortgages on which they only pay the monthly interest.
A rate rise would crash the already wobbly U.K. housing market, triggering a deep recession. So in a sea of incertitude, one thing seems to be sure: the pound is set to remain weak.
For minute-by-minute coverage of the crisis following the U.K.'s vote to leave the EU, check out TheStreet.com's special report on the Brexit vote.