Brexit: London Calling
When facing the famous question posed by The Clash -- "Should I stay or should I go?" -- the people in the United Kingdom collectively answered that they wanted to exit the European Union. What appears to have been a mostly political-based decision has threatened significant economic dislocation. Havoc has ensued.
I have listened in on a number of conference calls and read reports from various investment companies. Let me sum up their commentary: It's not good. We don't know how bad. The ultimate impact is unknown and in the long run it may not be horrible. In short, no one has a clue.
A truly diversified portfolio offers some protection when you do not know with certitude the impact of an event such as Brexit. Thus, on Friday, most bond investments actually rose in value (or went down only slightly). The same protection was achieved by many funds that take long and short positions in different asset classes. You may be surprised to find out that your total portfolio is still up a bit in 2016.
As of Friday, U.S. stocks, as measured by the S&P 500 Index, are down only 0.3% year-to-date. In fact, the S&P Index finished at 2037, still ahead of its February low of 1810. And today Asian shares appear to be rallying, although the European markets are down again.
The slow growing global economy will likely be further encumbered by Brexit. The impact on investments could be negative for a while. Caution makes sense. It does not mean, however, that large changes in your long-term investment posture are necessarily warranted.
Brexit brings to mind another song by The Clash, the apocalyptic "London Calling." The song includes the lyrics: "Forget it, brother, you can go it alone." Quite prescient. Check out the videos for "London Calling" and "Should I Stay or Should I Go." Great straight-forward, unadorned rock music.