Global Market Commentary

June 30, 2016

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Brexit — What Does It Mean? 

The British electorate has chosen to leave the European Union.  This will not be instantaneous, but will take a few years to be completed.

Some people view this as a political issue: Britain is tired of strange bureaucratic regulations from Brussels.  Others see it as resistance to immigration.  Still others see it as a reaction to the past three decades of falling living standards for many British people, especially the disenfranchised indigenous working class.

In our view, the key to whether Brexit benefits or damages the British people is trade.

If Brexit can be accomplished without a major disturbance in trade with Europe, the British people will benefit.  Germany and other exporting nations of Europe ship more goods and services to Britain than they import.  We believe they won’t want to shoot themselves in the foot, and thus will avoid trying to impose punitive trade conditions on the U.K.

How to Invest to Protect Assets and to Make Profits from Brexit

At the time of Brexit, we owned no European stocks or currencies.

The first stage of market panic over Brexit has ended, and in the short run, Britain, Europe, the British pound, and the Euro will rally. This rally will probably last until mid-July, when the Republican convention begins.  Shortly thereafter we will have the Democratic convention and a bitterly fought election campaign in the U.S.

All of these events will create uncertainty and volatility.  In addition, several more nations will probably see increased agitation for an exit from the European Union, which will continue to add volatility for years.

The major beneficiaries of uncertainty and volatility are gold, food grains, the U.S. dollar, and other commodities that allow investors to protect and grow their capital in an uncertain and potentially volatile world.  Also benefitting are U.S. stocks that pay good and rising dividends, as money moves from markets where the currencies are declining to the U.S., where the dollar is rising.

Investment implications:  Our suggestion for the intermediate term is to use dips to buy gold, and use dips to buy U.S. stocks with good and growing dividends.  Stay focused on holding assets in U.S.-dollar vehicles.  Avoid the euro, pound, and other currencies that will likely remain under pressure.

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