The Unspoken Post-Brexit Recovery

I'm going to give you a number to cogitate on for a few moments, and then we can chat for the rest of this column.  The number is 18,260.18.  Cogitate ...

It is not, as I'm sure you know, the average number of daily readers of this column.  I can dream, but the average is a bit less than that.  Plus, you already saw the word "Brexit" in the title and probably figured out what I was going to talk about.

Although from reading the media, you might have to think a bit longer.

Yes, dear readers, 18,260.18 is the Dow Jones Industrial Average figure at the instant I started this column on Monday.  This is of interest because a mere 18 days since, the Dow stood at 18,011.07 before a precipitous dive into the abyss following the British vote to withdraw from the European Union, the once-economic and now uber-political organization.

The stock market abhors uncertainty.  Not three days prior to the Brexit vote, the word on the street (and on "the Street') was that, close though the vote might be, Brexit was not going to pass and, as far as the European Union was concerned, the UK was going to stay in and the status quo would prevail. The market liked that -- change is uncertainty, and uncertainty is not good for stock prices.  Stock prices inched up a bit, factoring in the expected result.

Then the vote happened.  In a result that was a harbinger for our own upcoming election, the UK told the globalization  and centralized-power crowd to go take a flying leap.  And the market reacted violently, losing over 870 points in the next two trading days.

But here we are, 14 days from the sudden loss of that 870 points, having recouped all of it and then 250 points more.  And the press has been about as silent as it could be.  The same press that was blasting panic all over the place for a few post-vote days, has had precisely zero on its front pages about the remarkable recovery.

Now, I know this is incredibly self-serving to say, but I was on the verge of calling my financial planner (which has my recovering 401(k) funds) on the day before the vote.  I was going to tell her to sell out everything into cash before the vote the next day.

I saw the polls as being fairly close, and I felt that the polls in cases like this under-poll the politically incorrect position (i.e., the one that the polled public doesn't want to be forced to admit their support for).  I also felt there was no risk, because if Brexit lost, the market had already gone up in anticipation and I wasn't going to miss any big gain.  And I truly thought that whether the UK left the EU had no real economic impact on American companies, so if the market did crash, it would come right back.

I didn't call my advisor, and my 401(k) went south along with yours and everyone else's.  Now, the reasons I didn't call were pretty logical.  First, I would have assumed that the market would drop and I'd buy back in when it dropped.  But it costs money (commissions and fees) to sell out of a position and then buy back in a few days later.  So the whole strategy wasn't going to net very much.  Second, you don't play those games with a 401(k).  Retirement accounts are long-term investments.

Either way, our account is now about one percent higher than it was right before the Brexit vote, and I assume that most people's accounts are similarly up a tiny bit.

So let me take you back just a couple weeks.  Remember the evening news on the day after the vote?  Remember that for every minute spent on the vote itself and the surprise of it, and the news of the imminent resignation of the Prime Minister who was opposing Brexit, there were at least five minutes spent on the panic in the stock market as it dove over 600 points?  Remember that?

I remember it.  And once again, the "if it bleeds, it leads" press splashes the market crash all over its news coverage, but totally ignores the almost immediate recovery of all of the loss plus a good bit.  It's as if after four days of coverage of the JFK assassination, three days thereafter he came back to life, went back to the White House, and the press put it only in the social section.

Donald Trump repeatedly castigates the national press for its dishonesty and we all nod in assent.  Their control of the news and, by extension, how we react to the news, is a power protected by the Constitution.  That is as it should be.  But with great power comes great responsibility.

And it is our responsibility to hold them accountable.

Copyright 2016 by Robert Sutton
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