Britain’s vote to leave the European Union has shocked global markets. The exit is actually rather insignificant from a global GDP perspective. What has the market in a tizzy is the uncertainty that developed countries are shifting politically from a Left/Right paradigm to a Populist/Nationalistic ideology. A la Donald Trump…the Establishment Elite are running scared.
Britain’s move to leave the EU will almost certainly spur copycat elections in other countries. Is the EU doomed? [Listen to this episode recorded prior to the election, my thoughts haven’t changed: http://www.wealthsteading.com/191 ]
I believe that long term the BREXIT will be positive for Britain. I also believe that the Pound Sterling is oversold and thus today I initiated a small position in an ETF that tracks it: FXB.
As to overall market health…the schizophrenic behavior is precisely why I remain with the bulk of my portfolio in cash. Long term the BREXIT will have minimum impact on global trade. Short term change will most likely move slowly because much like a divorce, the legal work will take years to unwind.
I continue to believe that this market has a 5% upside and a 25% downside. Watch to see if the S&P500 can hold 2035. If not, the next support level is the 200dma @ 2020.
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