England votes to leave and markets around the world shudder…
The surprise at the polls reinforces the growing dissolution and distrust of ineffective big government and its institutions. We have seen similar populous angst play out recently in the presidential primaries in the U.S.
England's vote to leave the European Union may be the catalyst for voters in other nations to follow suit. But the immediate effect on markets is being felt broadly around the world this morning as blindsided investors and central bankers try to play catch-up. Today's volatility is likely to be most severe early in the trading session with markets recovering marginally as investors adjust to the new reality. Trading into a panicked session this morning is probably a big mistake. Liquidity may be hard to find at reasonable prices as investors crowd the "sell" trade.
The Brexit shock to the market may cause investors to reevaluate the remaining risk they have in their portfolios. This blow to the EU confederation is being layered on top of an extremely weak macroeconomic outlook. The Eurozone economy is struggling to find positive GDP growth, with ECB (European Central Bank) bankers using extreme monetary policy in the hopes of fueling some incremental improvement. Economic malaise is not limited to the Eurozone – all of the largest developed economies including China, Japan, and the U.S. are floundering economically to one degree or another.
Central Bankers will respond with their last gasp of monetary policy to try and forestall economic fallout. But what we need now is for politicians to respond with economic leadership by enacting immediate and long-lasting fiscal stimulus programs. The accommodative monetary base is already established and fiscal stimulus is what is needed to jump start a more powerful cycle of economic growth.
WBI has a time-tested risk management process that is designed to help us manage risk to capital during periods of market turbulence by adjusting each portfolio's positions as indicated by our quantitative portfolio modeling. Our dynamic, proprietary, internally managed stop-loss process will help us raise cash in an effort to protect capital, and then our quantitative buy system will help us get more fully invested when we believe good value opportunities have become available.
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