We discussed last week how the Brexit vote would serve as a catalyst for positive change as the status quo is no longer working which has led to rise in populism.
Markets hate uncertainty and therefore, fell dramatically only to regain footing later in the week recouping most of what was lost.
You may ask why and the answer is simple.
The vote was a shot heard around the world for the need for change, and is now being acknowledged everywhere, which frankly, is a relief. While we have been calling for fiscal, regulatory, tax and social change for a year now as the only way to right the global ship back to peace and prosperity, it seemed to have fallen on deaf ears as the entrenched establishment/elite did virtually nothing, leaving the onus to stimulate growth solely on the monetary authorities. Negative rates were their last attempt and had just the opposite effect than intended as it led to risk off and additional deflationary fears.
The Brexit vote was the wakeup call and finally, movement is afoot. Every day you learn more about the various problems that led to the Brexit vote and the rise in populism. Every day you are hearing calls for change from every corner of Europe and even here. The established centrists fear both the right and the left.
Finally the agenda has moved from status quo to making change. Why? Unless there is substantive change, the establishment will be voted out of office.
The prospects of growth boosted by the new policies will cause a dramatic mindset shift leading to a re-evaluation of global growth prospects therefore, impacting capital allocation, risk and investments. Imagine going from stuck in traffic to finally being able to putting your foot on the accelerator. Movement will not happen overnight but investors will need to shift gears in anticipation of these changes.
We all know in hindsight the traumatic impact of the huge global recession and meltdown in 2008. The pendulum swung quickly from one of ease and lack of regulation to tightness and over-regulation. Monetary authorities first stabilized the economy then spent seven more years offsetting all the fiscal and regulatory tightening resulting in slow growth, at best. It always seems that the pendulum swings too far in either direction before coming back to the middle.
How long have I been saying that one hand giveth while the other hand taketh away? Government and monetary bodies simply never understood the mindset shift caused by the meltdown in 2008. The overhang still exists today.
So...start thinking about more growth, more inflation, rising interest rates, increased corporate profits and a total mindset shift at every level.
And always remember to review all the facts, step back and reflect, understand mindset shifts, consider the proper asset allocation with risk controls, maintain excess liquidity and finally do independent research.
William A. Ehrman is managing partner at Paix et Prosperite LLC.