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Tel: (314) 961-1850

We wanted to reach out to you today given the historical action of Great Britain’s underwhelming referendum vote to leave the European Union.  Although the broad US market was down ~ 3½% after the vote, our portfolio models are down substantially less due to holding mostly US high quality centric stocks (companies not substantially dependent on economies abroad) with minimal exposure to Europe or other developed/emerging markets with added emphasis on US government bonds/ high quality fixed income/alternative investments.  Moreover, this allocation should be more resilient to recover as more rational investing prevails. 

WHY BREXIT AND WHAT IT MEANS?
The vote for Britain to leave was a shock; polls earlier in the week indicated that the U.K. would vote to stay in the EU. Those polls led to a major rally prior to the vote, with both the S&P 500 and Dow up nearly 2% through June 23rd.

Now, the market is giving back these gains and then some!

Why the vote to leave?   Although a relatively close vote – final vote ~ 48% remain vs ~ 52% leave – the UK has never been “all in” with the European Union; British political factions have always been skeptical of this 1973 integration; never fully accepting the legitimacy of European control in a way that the other EU members did such as border controls or common Euro currency.   Moreover, the post 2009 recession was even worse in the euro area and the European Central Banks, in contrast to the US, raised rates which led to a double dip recession for Europe, particularly hard on Greece (recall “Grexit”).

These bad economic/political policies led to a UK faction to pressure for a referendum vote to stay or leave, and here we are!  Essentially, what this means is that economic policies/politics that do not work for the economic benefit of free citizens will lead to government changes, which is what is supposed to happen!  If in fact, the UK leaves, it will take many months/ if not years?   There will be short term pain for hopefully longer term gains for the UK; ultimately this reflects poorly on the EU and its future.  In fact, bad politicians and Central Bankers will be “fired” in free markets; not a bad thing is it? Sound familiar? 

WHAT IT MEANS FOR YOUR PORTFOLIO MODEL WITH MAXELE
Portfolio Models are focused on minimal Europe/International market exposure but with an emphasis on high quality, US centric stocks, fixed income, alternatives (low or inverse correlation to stocks) and cash -to take advantage of market declines.   These investment themes have resulted in substantially lower declines on days like today and have been more resilient to recover when cooler heads prevail.

PERSPECTIVE:   In contrast to Europe, Japan and China, the US economy is doing relatively well.  This is a “shock event” and valuations will be revisited.   More than likely, our model investing will retain the aforementioned theme and focus.   Portfolios’ that are not as fully reflecting these investment themes may be reallocated.   Please be patient, and keep your investment poise.  Market volatility has always been with us and is normal.   Investment opportunities will arise as they always do and we will do our best to take advantage and adjust accordingly.  Do keep in mind the past 3-7 year very positive market returns; down to flat market periods are part of investing.  Keep focused on net annualized average return results in comparison to your next best alternative:  100 % bonds, cash or CD’s.   All of these holdings have underperformed a combination investment allocation ranges of stocks, bonds, alternative investments (gold, real estate) and cash, depending on Investment Model.

The recent history of the market:  Yes, it’s been challenging!   Over the last year and half, the broad US market is flat to negative!  We have not gone anywhere in 18 months!  As recent as July 21of last year thru Feb. 11th of this year, the US stock index (S&P 500) fell nearly 13%; non US government bonds shed ~5% on average according to Morningstar. In fact, we have had one of the worst past 10 months in recent history with two 11% corrections (Aug 2015, Jan. 2016) from peak to trough.   Historically, a ~10% correction/decline every 18 months is expected.  Also, usually we have a recession every 7-9 years; we are just passing 7 years now!  This cycle is normal and expected. Many sectors are still negative over this time, including energy, financials, small companies, healthcare, and many technology stocks.

Where do we go from here?  Keep perspective as short term investing returns change rapidly; realize that the majority of your invested funds are for the long term, 5 years +.  Opportunities will arise as we communicate with you via emails, our web site articles, calls and meetings. 

OUR FOCUS ON INVESTING IN THE CONTEXT OF YOUR CUSTOM FINANCIAL/WEALTH PLANNING HELPS US AND YOU KEEP FOCUSED ON YOUR GOALS AS OPPOSED TO SHORT TERM MARKET SWINGS OR TRYING TO MEET OR EXCEED MARKET INDICES.   

Steve Erken, CFP®
Principal
June 24, 2016

 

Market Performance

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Maxele Advisors may only transact business with Missouri and Illinois residents or residents of other states where otherwise legally permitted subject to exemption or exclusion from registration requirements

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Maxele Advisors, LLC is conveniently located in Webster Groves, Missouri with ample FREE parking.

MAXELE ADVISORS, LLC
20 Allen Ave.
Suite 330
Webster Groves, MO 63119

Tel:  (314) 961-1850

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