Brexit blah blah blah … what’s next?
No doubt your inbox has been hit with a plethora of emails with that title.
I’m sure they are good and insightful.
This note seeks to take a slightly different tact as we explore a hypothetical client conversation.
Q: Were you surprised by the outcome of
Brexit?
Brexit blah blah blah ...
what’s next?
No doubt your inbox has been hit with a plethora of emails with that title.
I’m sure they are good and insightful
.
This note seeks to take a slightly different tact as we explore a hypothetical client conversation
.
Q: Were you surprised by the outcome of Brexit?
A: W
e
had been saying for months that the market structure was looking we
a
k. We noted on several
occasions that the market was
failing to make
new
all
-
time
highs, instead making
a series of lower highs
which
is bearish.
In other words
the trend was DOWN and the trend is your friend.
More directly, we could not forecast the news trigger but we did expect it.
Q: How was my portfolio positioned for such an event?
A: For months we have been building and holdin
g a higher cash position than usual. Depending on the
client
,
cash can be anywhere between 10%
-
30%.
US Dollar
C
ash effectively ‘gained’
3.6
% in equity buying power on Friday the 24
th
. And in terms of
purchasing power in UK
Pounds
a
~10% gain.
Other part
s of your portfolio also helped namely Private Real Estate and Private Credit which were
essentially stable and/or gained in value depending on the particular security.
Relatively speaking we are well positioned
to protect capital in
a volatile market.
Q:
Where to from here?
This headline from The Telegraph in the UK is revealing:
"
Voters in France, Italy and the Netherlands are demanding their own votes on European Union
membership and the euro, as the continent fac
es a "contagion" of referendums”
In other words Brexit may be the beginning of an unraveling of the European Union
-
the start of a trend
rather than the
end
.
Ofcourse we don’t know for sure.
We can’t quantify this risk but it certainly
is
not Zero. Hence uncertainty is likely to prevail
for some time
and that will create market volatility.
Q: What is the effect on the USA?
From our reading
,
most market notes will deal with the impact of trade flows so we won’t rehash that
except to say
Brexit will
likely
be
short
-
term negative and long
-
t
erm positive
for both
the UK and the
USA
in terms of trade flows.
The more immediate impact is likely to be on the ‘imminent’ US election
s
. If we extrapolate the English
voter’s
frustrations back home,
then
who is the candidate
best suited to address the c
oncerns of the
masses?
1.
Xenophobia
–
our lifestyle is endangered by an influx of refugees
of different
religions;
2.
The elite 1% have grown rich on central bank money printing but the lower class is worse off
since the global financial crisis and the middle
class is hurting too;
3.
The establishment is no longer working for me
–
I don’t want to be governed by faceless
bureaucrats who merely line their own pockets
-
there needs to be change
and
SOON;
On balance we feel this plays more favorably into the hands o
f Donald Trump!
Q: Oh Boy!
Yip!
Was that a question?
The polls would suggest Donald Trump is losing
ground
to Hillary round about now. To
which
we will
say:
The Polls are Wrong!
How do we know that?
Well the polls were so glaring
ly
wrong in the UK! Why c
an the same thing not be happening here?
Q: Anything else?
Final observations?
As always we think the side show
i
s more important than the main event (which is already history).
1.
We are watching Russia and Putin like a hawk! He has been posturing around the
Baltics
militarily. Were he to make a move
,
Europe would be seen as week and ineffective as they are
stuck dealing with their own issues.
That would be bad for markets.
2.
With two polarizing
Presidential
candidates
in the US,
a lot of voters
are
scramblin
g for
something, anything in
-
between.
Keep
your eye on the
Libertarian
Party and its leader Gary
Johnson
.
Libertarians are fiscally conservative and socially liberal. Sounds to me exactly like
what
the U
S
voters are
looking for ... less government and more
fiscal responsibility.
The Libertarian party
is
now winning double digit
popularity
i
n
some states. While not likely to
be a real option for Presidency they may hold the all
-
important fulcrum point on who will
ultimately be victorious.
3.
Oh yes, the mark
ets
–
they will co
ntinue
to be volatile which means both steep drops and neck
bending
rises ... but on balance we will move lower until some of these issues are resolved.
We
are watching the Dow Transports closely because it has been the index which has led
the other
major indexes
lower
the entire year. Indications are for a retest of the January 2016 lows.
POSTSCRIPT:
The rapid rebound from the Brexit sell
-
off does not negate our original premise that the
markets trend is down! And therefore the real buy signal still lies ahead of us at lower values.
As for what will trigger the next sell
-
off, our answer is the same as
before, we have no idea but the
market trend is down and the trend is your friend!
---
Thank you for reading my post. I regularly write about private market opportunities and trends. If you
would like to read my regular posts feel free to also connect on
LinkedIn
,
Twitter
or via
Atlanta Capital
Grou
p Investment Management
.
Greg Silberman is the Chief Investment Officer of Atlanta Capital Group
Investment Management
[ACGIM]
. Atlanta Capital Group
Investment Management
speciali
zes in creating custom private market
solutions
for RIA/Family Office clients.
Advisory Services offered through Atlanta Capital Group
Investment Management
.
Nothing in this article should be interpreted as a recommendation to buy any security. Please con
duct
your own due diligence.
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