Brexit Commentary
Brian L. Kasal, CEO and Chief Investment Officer
Friday, June 24th, 2016, 5pm CDT
Thursday, the citizens of the UK voted to leave the European Union and as a result Prime Minister Cameron has resigned. They now begin a two year process to unwind governmental connections to the European Union and the other countries.
To consider what happened here, there is always a bias toward the status quo in any “change” election. Then, to actually have the voters of the U.K. vote to leave the European Union, certainly is a very dramatic development. In our view however this vote was very probable. This UK development is one that has echoed many other changes around the world. Europe has been under significant pressure with the changes to European economic policies and more recently immigration policies pushed by the European Union. Liberal Spending policies around Europe are being rejected now in many countries. There has been a rise of new political parties and alliances that are rejecting the status quo, so this vote we think is simply a realization of that concern. Immigration was the tipping point.
Some of the factors driving change in Europe are very similar to what’s happening in America. In the US we have seen rejection of status quo in this political season. Bernie Sanders almost beat Hillary in the Democratic primaries. Bernie and his supporters are still demanding change! Donald Trump rose up and beat all the regular candidates in the Republican field, as the voters lost faith in the current crop of candidates. Folks want change and are willing to challenge the status quo. Voters are unhappy and It seems we will get that change no matter which candidate is elected.
While the short term disruption that is caused when the status quo gets challenged, is never easy for folks to deal with, the changes could end up being positive. The world economies are in difficult shape and government priorities seem out of whack. Government debts are at record levels around the world and entitlement spending is also at record levels. Much of Europe has been in recession for a while. Certainly this BREXIT turmoil will not help in the short run. In America, growth has been tepid, but steady.
The world economies need to go back to growth and productivity as the only way for the world to begin to prosper again. Perhaps that will happen with a realignment of priorities that voters seem to be demanding in both Europe and the US.
AMERICA and the US economy enters this difficult period in much better shape than most of the other world economies. While no one can predict actually how this turmoil will specifically effect our economy, suffice to say that our economy is structurally sound and growing. We should benefit on the world stage from a flight to quality in the US, as has been happening for a number of years. Foreign currencies around the world are tumbling as investors flock to America during times of trouble.
For investors, this is also a huge disruption as world markets have been tumbled sharply today. FourStar has been advising investors to be cautious and consider the risks they are taking, at all times. We think the stock market pull back could well become an opportunity for those that are able to take some risk.
For FourStar clients our main Dynamic portfolio entered today with only 25% stock, but a larger 50% allocation to commodities, gold and silver, primarily, which are up nicely, and 25% cash. So that portfolio showed no damage as a result of today’s action and was up slightly. We are advocates for the idea that those investors who can take risk, use some of these dynamic accounts to protect precisely against days like today. Our other US stock portfolios all had higher levels of cash 25-30% cash in many cases to give more protection than most investors have with their current advisors.
We are going to have more comments in the next week or so. We will be out with our second half commentary and video in early July. We just wanted to come out today and offer out thoughts in light of the extreme disruption in the world politics and financial markets.
Let me just offer this additional comment. The bottom line is for any investor that has worked with us on a strong, well vetted financial plan with long term goals and assumptions; nothing that happened today should be prove to be material to disrupt your plan. One day, one week or even multi-month market disruptions are built into everyone’s plans. As long as the assumptions, spending, inputs and asset allocation aren’t changed the plan should continue to work, achieve your goals, and continue in normal fashion. If any investor would like to review assumptions, plans, or just generally discuss what’s happening, please call us anytime.
To quote a recently popular phase, “Keep Calm and Move Forward”. If there is any course correction needed we will discuss as needed.
It’s summer and it will be a great weekend, everyone have a great weekend! Don’t worry, but if you are worried do call us!
This update is provided by FourStar Wealth Advisors, LLC (“FourStar” or the “Firm”) for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. FourStar is an SEC registered investment adviser that maintains a principal place of business in the State of Illinois. The Firm may only transact business in those states in which it is notice filed or qualifies for a corresponding exemption from such requirements. For information about FourStar’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov.
