July 2016 Letter
Summer is usually a time of peaceful reflection mixed with relaxing times at the beach among family and friends, catching up on overdue reading lists. Not this year. Just three days after the official start of summer, we were hit with “Brexit.” “Brexit?” Yes, the people of Great Britain spoke and on June 23rd voted to leave the European Union (EU). Despite polling numbers showing a tight race, financial markets around the world had been positioned for a vote to remain in the EU, and the surprise outcome caused global equity markets to decline. Sovereign Bond markets rallied, pushing interest rates down to historical lows and in many cases below zero and the dollar moved higher, particularly against the British pound which fell to multi-decade lows.
Within a few days, markets began to steady themselves, but we’re now left to confront a whole new list of uncertainties. The legal process for Great Britain to leave the EU may not start until next year, if it starts at all. Political leadership in Great Britain is now in turmoil and if the country does move forward to leave the EU, the process could take several years. Meanwhile, economists around the world have lowered growth expectations for Europe and Great Britain, while business leaders adjust plans given new uncertainties and changes in currencies. We remain committed to putting high quality stocks and bonds in your portfolios and expect that the “Brexit” vote may have a moderate impact on U.S. economic growth, but market volatility could persist as the political process plays out.
Referendums, like the “Brexit” vote, are the purest form of democracy, but differ to the way our founding fathers envisioned the election of our two highest ranked public officials. With the 2016 presidential election looming, for this quarter’s newsletter, we’ve enlisted Covington Advisory Board member, John Cooke, to give us a historical perspective on how we elect our President and Vice President. John has been a member of our Advisory board since 2012. He has a long resume of both public and private service including senior executive roles at the Walt Disney Company. We’d like to thank John for his efforts in preparing this quarter’s newsletter and think you’ll find his insights quite interesting. This fall, many people will again think about our nation’s great universities, but it is the Electoral College that will help shape our country’s course for the next four years.
While “Brexit” and our presidential election will continue to dominate the news, we hope you will still find time to catch up on your summertime reading. As always, we welcome your comments.