Brexit

Yesterday citizens of Britain voted by a strong margin to leave the European Union after 43 years of membership.

The EU was formed after World War II as a means of tying countries together in a way where they'd never want to war with each other again. A big part of the ties are related to the "free flow" of goods and services between member countries.

The size and scope of the EU has grown over the years to the point where the majority of Britons feel that being a part of the union is making their lives worse. The EU bureaucracy, muddled incentives, and collectivism may in fact be keeping the member countries from doing better than they would as individual players in global commerce. A sense that the relatively wealthy and productive countries in the north are subsidizing profligacy in the south prevails. The examples of non-EU Swiss and Norwegian economic success also likely weighed in voter's minds.

Europe has yet to regain its footing from the financial crisis of '08 and '09.

Not nearly as old as the EU is the European Monetary Union that created the Euro as a single currency. Britain never adopted the Euro.

Most of our accounts were at or near record highs as of yesterday. Early polling yesterday suggested Britons would vote to remain in the union giving stocks around the globe a nice bump.

Stock markets around the globe are getting beaten up today with the true consequences of Brexit presently indeterminable. Markets don't like uncertainty.

Bonds are helping in the portfolios where they reside as the usual "flight to safety" is now on.

However, there are 2 years to work out the details of Brexit and long run it's possible it will be wholly positive.

If it's true Britain will be better off out of the union, as they'll have control over what's best for them, then there may well be a real push to start to reverse the size and scope of the EU so individual incentive can regain some ground from bureaucratic collectivism and the global economy can finally move forward with greater potential.

Trade between nations benefits all. While there may be some short-term impediments in British-EU trade, it's hard to imagine trade would decrease between the two over the longer term.

Some European leaders already seem to get it and are talking of reforms to address the frustrations felt by many.

Time will tell, and portfolio volatility can be frustrating, but good things may come from this.

Regards,

Erik