by John Hartley
Interestingly (perhaps only to me!), fallout from the recent Brexit vote and the recent performance of US equities appear to have something in common: TINA. An acronym for “There Is No Alternative,” TINA was coined* in the 1970’s for the Iron Lady, Britain’s first female Prime Minister Margaret Thatcher. Mrs. Thatcher was an ardent supporter of free trade. In economic policy, despite its problems, there is no alternative to global capitalism for modern societies to build and distribute wealth and to advance their economies.
With the late-June turmoil (market and otherwise) around the UK vote to leave the European Union, US equities quickly recovered almost all of the initial decline (the major UK index ended June almost 4% higher!). So why the recent risk-on stance in equities? Thanks to a 30-year decline in interest rates, and more recently, extremely accommodative global monetary policy, returns have been harder and harder to find. And as most investors only have stocks and bonds in their portfolios, public equities (domestic) tend to be the beneficiary. In this low-return environment, people eventually grow weary of just pennies on their cash positions. As private markets are generally inaccessible to the individual investor, public equities benefit further. Market participants are thus more willing to accept the equity volatility associated with geopolitical uncertainties and currency fluctuations. Here at the Foundation, our very long-term investment perspective dampens the volatility of equities, historically the highest returning asset class. We do, however, employ a small allocation to private markets for diversification purposes.
So back to the Brexit vote, TINA? After the vote, then Prime Minister David Cameron resigned and now Britain has its second female Prime Minister, Theresa May. Would Maggie be pleased?
* “There is no alternative” is also attributed to the nineteenth century British philosopher and political theorist Herbert Spencer. He may be best known for Social Darwinism and the phrase “survival of the fittest” that he used after reading Charles Darwin’s On the Origin of Species.