BREXIT – What now? 

No doubt you’ve heard the historic news.  This massive movement, Brexit, has only added to the already historically volatile market behavior experienced over the last couple of years. The markets were clearly caught off guard; major indices closed down more than 3% on Friday. And with this recent “yes” vote (to exit the European Union) seemingly in play, it gives rise to even deeper concerns about the direction of markets as well as expected continued aftershocks around the globe. If Friday’s market behavior is any indication of what is to come, fasten your seat belt… the ride is expected to get a little rougher. 

Here in the U.S., concerns of more significant slowing seem to be growing as global growth continues to lag in spite of unprecedented stimulus. Who knows, some well noted economists have noted we are already entering recession territory. Interestingly, it is historical fact that we do not generally realize a recession is upon us until many months after it’s already started.  A tell tale sign may be giving us a peak in to what is ahead: two of the “Big Four” indicators are holding up pretty well so far: Real Retail Sales and Real Personal Income (excluding Transfer Payments). But the two others have been declining for some time now.  The U.S. “rate” of growth (Industrial Production) has been in decline for about four years… and the actual level of industrial production has been mostly contracting for the last nine months. The next disappointment? – Nonfarm Employment the Labor Department recently shocked the world when they announced one of the most dismal reports since 2009. But what most people may not yet realize is the fact that jobs (and industrial production) are slipping badly despite still-massive money-printing by the Fed.

Although today is beginning to look more and more like 2008, it’s not all bad news for investors. The last time things looked this way and led to a significant downturn in the market, long/short portfolios were able to capture nice gains over a 18 month period with “inverse” market exposure.  So while the market did have a longer term decline during the credit crisis, many long/short portfolios gained in value by utilizing inverse positions. This is where the All-Climate Portfolio has the opportunity to gain back some of the decline in value from a numerous surprising economic and political events over the last few years. 

In short, more volatility is likely, and the S&P 500 could easily fall further, however, we will likely be taking a inverse position to take advantage of just such a decline in the markets. So – it’s not all bad…. and can even be a profitable event if we should see a significant and prolonged decline.

As always, please feel free to contact us if you have any questions or concerns.

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