Brexit With A Vengeance

This week’s Market Update takes a long look at the Brexit and it’s fallout. I would add that markets appear to have not priced in this result based on the extreme moves in many asset prices including equities, currencies and income markets. It is of course the nature of markets to overreact in the face of uncertainty which is where this event is now. At some point the initial reaction ends and markets go back to sorting through fundamentals until the next big, scary event. Over an investing lifetime there will of course be many such events and while they are all “different” the result is always the same. The market figures them out at some point and move on.

From the update;

In trying to put context around Friday, the initial reaction was a fast, semi-panicked decline. The nature of fast declines is that they often snap back quickly. A fast recovery, should it happen, won’t be a surprise but would do nothing to solve the fundamentally uncertainties. The referendum is actually non-binding but for now there is no expectation that Parliament would not adhere to the vote. It is likely that separating would take a couple of years but that agreements would be put in place such that it wouldn’t be a complete and total separation.

There is plenty of uncertainty about what will happen to growth rates for the UK and Euroland. Part of the justification for the European Union was to promote trade and while this report won’t make a qualitative assessment on the Union or the referendum, anything perceived as restricting trade will be difficult to digest and even if markets do bounce back quickly it could be years before the ramifications of the vote are fully understood. In the meantime there will be questions related to who else will want to leave, this makes things complicated for Scotland (the Scots voted to remain) and Northern Ireland.

Please click through to read the entire update.

A couple of trucks from a neighboring department.

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From our hike on Sunday.

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