Making Sense of Brexit…

- 2016 2nd Quarter

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Nothing is lost in the telling these days on the news, and this is especially true on the financial news services.  Listening to the talking heads over the last couple of days could convince you that we are in the crosshairs of a terrible financial catastrophe.  But, we think cooler heads will prevail, and while Brexit is a complicated and not an altogether good bump in the road, it doesn’t foretell disaster for world markets.

First, in the short term, we do think that the Brexit news will be bad for Britain’s economy because it leaves a big question mark next to their near term financial status.  The Pound will weaken and there has already been some movement to extract employees and business from Britain in anticipation of the change.  This will certainly have some effect in Europe as well.  This can mean that the recovery underway in the Eurozone could slow.  There is even some talk that other countries might try to imitate Britain, further destabilizing Europe.  We will certainly feel this shakiness here in the US markets because of our close alliances, but it does not appear to be so negative that it can counteract the many good things we are seeing in our own domestic performance.

Secondly, short term we feel that this will slow down potential rise in interest rates.  For the most part this is good for you and me.  It means lower mortgage rates, and cheaper financing in general.  For big companies, it is no different.  And when people and companies borrow and spend more, the markets generally like it.

Long term, we think that the world will adjust.  One of the biggest disruptors of markets is uncertainty.  As the final results of the Brexit movement come into focus, the corporate world will have a chance to adjust.  Good companies can generally figure out how to make money if they can understand all of the variables.

In our managed portfolios we have made some recent adjustments to reflect markets that are more mature.  Real Estate was added as an asset class, and some small changes were made to overall allocations.  We really don’t see that the Brexit news changes our opinion of what the portfolios should look like.  But, we will remain ever vigilant of examining the risk and reward present in the markets.

We don’t think this is another 2008.  Remember, we have record low unemployment, good housing numbers, tighter banking laws, low interest rates, and many other healthy and sustainable factors that illustrate that we are in general in good financial health.  So look at this as a buying opportunity. Whether you are reinvesting dividends or participating in your 401k, try to see the market as being “on sale” rather than headed for permanent trouble.

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