‘Uncertainty’ Is The New Normal


June 22, 2016, 2:20pm EST

Tomorrow is the UK vote, where UK citizens will vote on whether to ‘stay’ or to ‘leave’ the European Union.  In this post-Lehman (failure) era, we’ve had no shortage of fear and doubt.  Remember the Fiscal Cliff, Sequestration, Cyprus, several chapters of the drama in Greece, Italy and Spain were threatening default, China’s slowdown – the list could go on.

Along the way, the message in the media has always had little substance, but one very common word to promote and validate fear:  the word, “uncertainty.”

But throughout this entire post-Lehman era, the world has been a very uncertain place.  Whether times have been relatively good or not so good, given the state of the world seven years ago, and given the unprecedented policies it has taken to get us here, uncertainty is the new normal.  But what is certain, following the near apocalypse of the global economy, is how policy makers will respond.  We know, without a question, they will do ‘whatever it takes’ — their own words.  And they’ve proven that their actions can avert disasters and promote confidence and recovery.

With all of this in mind, let’s dig in a little bit and talk about the UK vote.

First, to be clear, there are a lot of comparisons made to the Greek vote last year (the “Grexit”).  The UK vote (the “Brexit”) is very different.

The notion of Grexit threatened the existence of the second most widely held currency in the world, the euro.  That was a much, much bigger deal.  The UK, of course, is part of the European Union, but not part of the currency union.  They did not adopt the euro.  They have their own currency and their own monetary policy.  The UK vote is about trade, immigration, ability to work and live in other EU countries — perhaps mostly about control and politics.

The polls have been broadly building the story for an exit, though they are also broadly deemed unreliable.  Meanwhile the bookmakers have had the chances of an exit, along much of the way, as slim (at about 70/30 favoring the ‘stay’ camp).  Still, at the peak of the frenzy last week, that number had narrowed to 56/44 favoring ‘stay.’  But when the pendulum of sentiment swung, so did the bookmakers odds of a ‘leave’ vote winning.  They are putting the chances of an exit at just 25% as we head into tomorrow’s vote.

As we said, we’ve seen a number of events over the course of the past several years that have introduced fear and doubt into the minds of investors (and especially the media).  Something to keep in mind:  Any and all of the dips in markets associated with those flare-ups have proven to be extremely valuable buying opportunities.  As we noted yesterday, some of the best spots to buy the dip this time around will likely be German and Japanese stocks.

Have a great night.

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