Now comes the uncertainty that follows the largely Democratic decision for the United Kingdom to leave the European Union.
This is going to overhang us for some time.
The currency markets will continue to roil. The downside movement of the European money center banks is creating increasing uncertainty. The realities of a less-than-optimal economic environment on those European balance sheets, with inflated assets in desperate need of appropriate write-downs, will yield further uncertainty, likely into this year's end. The stocks of these European banks are telling us that these balance sheets are in desperate need of a cleansing and could result in sweeping volatility before calm reappears. Lloyds (LYG), Royal Bank of Scotland (RBS) and Barclays (BCS) are all down 20% or more at the moment.
The beginnings of what could be a transition toward provincial populism and nationalism could catch fire here in the United States as it has in Britain, albeit at a very narrow margin. Significant changes to our current government structure -- some desperately needed -- may result as the election approaches.
A revolution of sorts also could gain momentum, driven by the fed-up working and labor classes that comprise the majority of our populace. This would certainly be viewed by our equity markets as counterproductive, at least in the near term. Hopefully, the altruistic ultimate goal of much-needed reforms to our tax, spending, immigration, trade and diplomatic policies may result. But that is far away today. At the very least, our banks' balance sheets are in much better shape, save for the unknown black boxes of leverage and derivatives that could unwind at any moment.
Donald Trump could be our next president, as he stokes his provincial views in Scotland, a brilliant move for his candidacy. He continues to promote isolationism and nationalism to our labor and working class people here in the United States in a seeming ultra-pragmatic fashion. Brexit's result today can inspire the majority of Trump supporters to visit the polls in November, potentially in droves.
I'd love to buy U.S.-centric infrastructure-type stocks as a result of this potentially pragmatic shift in how the U.S. spends and creates jobs. However, these stocks already are trading at higher-than-normal multiples and are likely due for a pullback. Names such as Valmont Industries (VMI), Martin Marietta (MLM), Mueller Water Products (MWA), Vulcan Materials (VMC) and Sherwin-Williams (SHW) ultimately can continue outperforming, but they are just not new-money buys at present. A pullback is needed and could be viewed as healthy.
More clarity on the election, job creation ideas and infrastructure plans is needed. At the very least, given that fuel prices for the consumer remain lower today than they have been in 10 years, the federal government has a lever to pull in the way of increasing taxes and surcharges on consumption to pay for what could be a tremendous and long-term period of infrastructure investment.
When fear rears its ugly head and meaningful calls for change begin to gain momentum, the unfortunate thing for us to do is just wait ... for capitulation.