No Bregrets | June 2016
by The Algonquin Team, Algonquin Capital
"But apart from the sanitation, the medicine, education, wine, public order, irrigation, roads, the freshwater system and public health, what have the Romans ever done for us?"
~ Monty Python
After a century of watching countries declare their independence from them, the British decided it was their turn. With a vote to leave the European Union, Britain enters into unchartered territory, and that too without a prime minister, a functioning leader of the opposition or a football manager. And everyone knows how the markets love uncertainty.
As can be expected, sterling has taking a pounding (bad pun intended). Equities have become more volatile and bond yields are dropping in anticipation of further stimulus by the Bank of England and the European Central Bank. Gold bugs are overjoyed to see their precious metal rocket higher as people seek safety, and punsters are having a field day creating catchy exit terms in case another domino falls. Our personal favourite so far is "Austria la vista, baby."
At this stage, with so much undetermined, it is still too early to tell how this story will unfold. While markets showed some optimism late in the month, we expect little follow through in the near future. Currently, the list of unanswered questions is growing much faster than the list of answers. As a result, imaginations and the media can run wild forecasting a variety of negative scenarios. This has the potential to roil markets from time to time.
As this saga continues to develop, we will focus on identifying potential pitfalls and opportunities that may arise. Given that market reaction to a negative surprise could be swift and severe, our larger concern for the moment is avoiding landmines.
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