BREXIT? Right Back Where We Started From

Tuesday, July 12, 2016

I have made a conscious decision to not mention the word "BREXIT" because on June 24 there were enough talking heads on television setting their hair on fire informing us about how a global recession would take place with the disclaimer that no one really knows what the consequences will be.

Frankly, I was not in the office that day because I had more important things to worry about - namely my triplets' graduation party that was taking place later that evening. I realize from a client perspective that it may not have been the best day for me to be out of the office, but as we all know allowing emotions to get involved in your long-term investment decision making usually does not end well.

Prior to the citizens of England voting to exit the European Union the S&P 500 closed at 2113.32 on July 23. (S&P 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. You cannot directly invest in the index.)

As I write this rant it is currently at 2097.12. Yes, it is 18 points lower than it was prior to the vote, but hardly a stock market event that justified the entire concern expressed post vote.

We always hear how the markets don t like "uncertainty" and it seems that the elite policymakers around the globe have been doing their best to avoid uncertainty. The reality is that free market capitalism is the opposite of a system built on certainty. Who knows what will be invented or discovered next or how the consumer will change his or her habits going forward.

If you want certainty, take a look at North Korea, Venezuela, or the old Soviet Union. Those types of economies minimize flexibility, choice, and freedom while maximizing certainty. The last I looked it did not end well for the old Soviet Union and is certainly not going well for the citizens of North Korea or Venezuela.

Don't get me wrong; some certainty is good. The certainty that people's property rights will be respected and protected by their government is a good certainty. Governments that respect the rule of law is a good certainty. Minimizing corruption and political correctness is a good certainty.

To me, it appears the British people found themselves increasingly buried in rules and regulations not of their own making and lacking the representation of democratically elected leaders. They also have some very legitimate concerns regarding their border and the European Union's demand that they allow everyone to come and go from their country as they please.

Yes, I get it that it seems like all we hear from the media are forecasts of doom and gloom. At the end of the day the most significant factor signaling the underlying health of an economy is profits and losses.

So everyone take a deep breath, it's the beginning of earnings season and over the next two to three weeks we will hear and see the numbers that will demonstrate if companies are making money in this economy or losing money in this economy. If profits are rising then my bet is stocks will follow and optimism can go a long way.

As I have stated before, keep calm and carry on.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

Author

Wesley Lentz Wesley Lentz

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