Brexit Commentary

I thought I’d share my commentary on the British Referendum prior to the vote. The British will vote today to exit the EU. 

Referendum are always major political events, and often times there are critical changes based on these votes. Other times there are no major impacts. 

This referendum is actually quite funny to me, as a major reason for the exit vote is to keep EU citizens out of England. Ironically I pursued Polish citizenship in order to effortlessly be able to live and work in London England, and this vote is directly against my own plan.

On May 20 we wrote:

We absolutely acknowledge the uncertainty in the markets. The idea that yet again, year-over-year, Europe is facing another member state leaving is not as meaningful as markets would believe.

The UK is not a member of the common currency or Schengen area (open border system within Europe).

We hate to sound like a broken record, but we do not believe this event is meaningful enough to warrant a market selloff. An exit from the UK is neither threatening a currency, nor political structure – in fact if any Euro member were to quit, it would not be much easier than arranging the UK’s exit. 

Where we do see an impact and where there is uncertainty post referendum is in the European Economic Area – which was the core and foundation of the modern EU, the free trade area starting in 1952. It was on this free trade base that much of the European recovery post war was built upon and was the foundation to the EU.

The British are not holding a referendum on free trade and even if the emotional decision to exit the EU from a political perspective is taken, we would imagine a quick jolt – the pound would fall, and uncertainty would hurt us over the short term, but the economic situation of Europe would not be significantly changed. 

We tend to think the markets will have themselves a trip like this, here is a chart of the S&P 500 from 2009 until now, constantly climbing a wall of worry.

(Source: Bloomberg)

We think its prudent to buy the stocks you want to own prior to these short term political events as the closure to the uncertainty should help rally the markets. 

We have added Home Depot and Nike during this turmoil when the market has given us a good entry price.

Chris, Rick, Steve


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