Welcome To Summer Swoon 2016

Has anyone seen a country lying around here? I jest – sort of. While my intent is not to make light of Brexit’s results, I think it would be remiss to suggest anyone “knows” what will happen next. But this is yet another good lesson in emotional responses – looking through the lens of history.

For example, I am pretty sure that Great Britain got along pretty well before it joined the EU. And, let’s be honest just between us – they never really completely “joined” the EU anyway. They kept their own currency, they have a different “deal” than the other members and well, they have been bold in their decision to leave a union which has been generally successful for only one major economy – Germany.

So while much ink will be spilled over the terrible things to come, I simply suggest we gladly step back (as we had hoped) and look for the advantages of the swoon. Fear was already high as we repeatedly cover.

The massive appetite for bonds continues to show the bright red mark of fear – deeply-seeded. The latest data confirm same again as few bulls exist. By the way, the data in this chart are fresh this week – we can be assured they will go even lower near-term as “Brexit” fears now take the stage from all other monsters for the time being. Take a look:

The two charts are the same – I have merely added by hand a line back over time. It highlights for you that we have not been here often – but each time, in time, has proven valuable for patient investors.

More important, note the preponderance of low readings at the far lower end of the data set over the last 12 months. For many, it appears the future is dark – oddly, almost exactly when the pipeline of coming demographic demand has never been brighter.

For this morning: Futures are obviously way down – looking like an open about 550-600 points. Or, back to where the averages were in early March.

This too shall pass. Remember, we need to focus on the current underneath and not on the surface of the water.

But for now – let’s just worry right?

Cut to The Chase

There will be tons of ink and endless minutes of on-air chatter which will try to tell you what will happen next. The honest answer is no one has a clue but we should recognize this while too many hit the near-term panic button again:

Do we honestly believe that Brexit will change even a small portion of the actions which will be taken by 78 Million baby-boomers preparing for the last 40 years or so of their lives?

Further, do we truly suspect that Brexit will change the fact that 86+ million kids will grow up here in the US? Will it shelve the idea that tens of millions of new households will form here over the next 3, 5, 7 and 10 year periods?

Will it derail any of the massive technological or medical advances being made?

Do you think anyone who planned to go to dinner tonight here in the US is going to cancel their plans because of “Brexit”?

Seriously. Sure it will be ugly today – maybe even for a few weeks, but opportunities are almost always ugly – period. It’s a required part of the deal along the way up the mountain.

Consider This Though

I recognize one sounds smarter if I tout the idea that “market’s don’t like uncertainty” but alas, it just sounds smart. It tells no one anything really. In fact, markets may indeed “feel” that way but investors should feel the opposite! Why?

Every single pebble in our past which was associated with “uncertainty” and market selling turned out, in the long run, to be an opportunity instead. Think about it for a moment.

The immediate impact today has so far been a 3-12% fall in global equity markets, although over in the UK, in sterling terms, the values lost in overseas markets are less severe. So far, Europe has been worst hit, with Japan also down 8%.

Sure this could trigger the whole summer swoon we have been suggesting we pray for – but that will depend on whether the loss of confidence (again) can be contained.

The good news? We all know the US economy is pretty darn resilient and there are very few immediate consequences from the UK’s vote.

The risks of financial contagion appear manageable – and way overblown in the media. Most parts of the banking sector today are well-capitalized, far better off than in 2008 and 2011.

Indeed, just yesterday, the Fed noted that all 33 major banks passed their most severe stress test conditions.

We may want to consider this idea as well:

It is quite possible that the post-vote mood will be less gloomy than the younger generation and the metropolitan intelligentsia may feel today. After all, half the electorate have got what they wanted and the other half is unlikely to enter prolonged grieving. There will be economic costs (probably less inward investment, pressure on consumers) and benefits (from a more competitive exchange rate) and it is not clear, in isolation, which will dominate over the coming years.

The key battleground for confidence will obviously be in Europe. I suspect they will be better equipped and more nimble than in the 2011-12 Euro crisis?

But here is what I have witnessed over the years when major reasons cause buyers to lack confidence: The business just goes somewhere else – i.e., the US.

Where does capital almost always flow when there are great questions facing investors globally? They flow to US assets.

One More Benefit

It is a whole new wave of fear. Fear is what has made (and kept) rates so low. Forget a Fed rate hike now. Off the table, right or wrong. Waves of new capital will look for “safe bonds” to soak it up.

Someday in our future, we will look back on these crazy times since 2009 and we will thank our lucky stars and God above for all this fear.

Look for more huge waves of refi’s as rates tick lower. Look for significant corporate and personal cash flow savings on balance sheet adjustments which will be another big advantage taken from the latest wall of worry.

The Bottom Line:

The pathway set in the make-up of our demographic structure here in the US is one of surprising strength given the solid and growing pipeline of demand from Generation Y on one end and the Boomers on the other..

Remember – fear and faith ask of us the same thing. To believe in something we cannot see.

Stay focused on your Member’s Area updates – more out over the weekend.

Until we see you again, may your journey be grand and your legacy significant.