This week I thought I would update you on a topic that is garnering worldwide headlines. The Brexit drama in the United Kingdom continues as the Prime Minister and legislators continue to fight over the impending Brexit deadline.
Essentially, Brexit is designed to remove the United Kingdom from the European Union (EU). What was once a promising union of countries has lately encountered difficulties. Many countries are wondering if it was a mistake to consolidate economies and currencies. Britain has decided through a close popular vote to exit the European Union.
What is up for dispute is how that exit will occur. Moderate legislators and the European Union would like the exit to occur over time to avoid any trade disruption. The hope is that a gradual transition will be less shocking to the European economy.
The hardline proponents believe that it is worth the economic disruption to exit the European Union without a transition. They argue that any disruption will be temporary and that those calling for a transition are merely trying to permanently postpone exit.
Investors and economists want a gradual transition to avoid uncertainty and sharp disruption. Philosophical proponents of Brexit believe that the principle most important is country sovereignty and are demanding exit as soon as possible.
It appears as if the move to exit the European Union next month in one dramatic moment is encountering headwinds. The news changes on a daily basis and there continues to be contentious arguments in the United Kingdom about the path forward.
We believe it is likely that a gradual transition will occur but there is no guarantee that will be the case. Investments that are significantly focused on United Kingdom trade are particularly subject to challenges. Additionally, European union focused companies will likely encounter headwinds if a hard exit occurs.
While the drama in Europe certainly is problematic, we are not overly concerned with this issue relative to other economic challenges. We believe slowing growth in the United States, the possibility of a recession, and drama with China are bigger risks. While European headlines will indeed undoubtedly spur fluctuation in markets, we expect this to be temporary.
We are not significantly invested in international assets and have focused most of our assets in US based companies. It is true that most US based companies will trade on an international basis and that is virtually unavoidable. But we have taken steps to avoid companies that are based in international problem areas to limit the impact on portfolio strategies. We continue to closely monitor the earnings of companies to determine if we have exposure to any problem geographic locations.
We expect market volatility to continue based on headlines from around the world, including Europe. We are invested on the assumption that this is a permanent condition. We will continue to take steps to adjust portfolios as needed.
Any questions let us know! Always here to help!