Whether it’s the EU, ECB, FED, NAFTA, TPP, WTO, IMF, QE, ZIRP or now NIRP … the whole alphabet soup of established economic policy and international free trade seems to have come under intense scrutiny this year.  While our own domestic election year politicking certainly plays an inflammatory role, we are struck by the far-reaching nature of the discourse on globalization, particularly in light of the United Kingdom’s recent decision to leave the European Union (commonly referred to as the “Brexit” vote).

In isolation, it is too soon to tell whether the BREXIT vote is the start of a trend away from globalism or simply one country’s narrow decision to leave an increasingly complicated political and monetary union.  After all, the European Union – while it has much to celebrate – has still morphed over time into a highly complex bureaucracy with intense regulatory and taxation authority.  Against this backdrop, the United Kingdom’s recent vote to look inward and favor nationalism and sovereignty may simply reflect a decision to shun the perceived control of a distant bureaucracy.

However, as we step back and look across the globe, the United Kingdom’s referendum looks less like an isolated event and more like a matching piece in an interconnected global puzzle.  By the latest count, there appear to be as many as eight other EU member states with strong and growing separatist or nationalistic movements.  In Japan, the country’s fiscal initiative known as ABENOMICS, is under scrutiny given falling growth and inflation expectations, the rally in the Yen and the population’s greater sense of urgency to jump start growth.  As a result, Prime Minister Abe has postponed next year’s planned VAT tax hike.  In the United States, the unexpected rise of both Donald Trump and Bernie Sanders – both anti-establishment candidates – is also noteworthy in this regard.  And in China, where any kind of political controversy is deliberately kept as hidden as possible from the outside world, it remains clear that there is an ongoing and popular anti-establishment mood to root out political corruption.  Something appears to be “in the soup,” so to speak, and on a global scale.

Meanwhile, on the economic policy side of the table, central banks in Japan and Europe have embarked on unprecedented campaigns of using negative interest rates, having fallen short of their goals to deliver better economic outcomes by other means.  As a result, commercial bankers have now joined savers, retirees and pensioners around the globe as a constituency upset with this new and experimental monetary policy and its adverse impact on their fixed income investment returns.  For its part, even though the Federal Reserve continues to maintain positive interest rates in the US, our own yield curve still remains historically low and the prior economic policy known as  Quantitative Easing (QE) has become increasingly politically unpopular.  Ironically, the main stabilization policies of the world’s central banks accepted during the Financial Crisis are now the ones coming under the most scrutiny by a concerned constituency around the world.

When it comes to examining the causes of this worldwide populist groundswell, we are politically indifferent.  Instead, our job is simply to consider what this potential trend might mean for investment results in the coming period.  What we find particularly interesting about this ‘movement’ is the desire and willingness of many to readily accept the unknown over the status quo.  Indeed, many Brexit voters were willing to try something new even though no one really knows what the consequences will be from this new choice.   If the same general attitude holds true elsewhere in the world, then we could see more surprises in the coming period.  Is this something that investors should fear?

The answer to that is ‘not necessarily.’  There are always doomsayers with a laundry list of global concerns and bear arguments focused on unsettling the investment environment and it is no different here.  Uncertainty in the markets is always present and a divergence of opinions is the natural order of things.  As an investor, if one always waits for certainty and clarity before committing capital, then more often than not, one can miss the entire investment opportunity at hand.

It is our view that for now further market shocks tied to rejecting globalism will likely be ‘regional’ shocks – just as Brexit was – rather than global events with long-lasting and ‘contagious ripple effects.’  Individual countries making collective decisions about their futures will certainly have emotional impacts on domestic investors and citizens alike – and may also have related negative impacts on economic growth; but as Brexit has so far showed, the resulting outcomes are usually far less dire than the heated rhetoric of the moment would imply.

Of course, there still could be troubling global ramifications sparked by Brexit, if other key member states choose to leave the European Union.   The break-up or disintegration of an economic block of this magnitude would surely have global economic consequences and a profound impact on currency markets.  At present, though, there is no immediate threat of this happening, and such an event remains a low probability outcome.

It is also important to recognize that there is opportunity in volatility, just as there was for your portfolios in the immediate aftermath of the surprise Brexit vote.  Importantly, beyond the market-induced volatility of this event, the BREXIT vote also triggered a series of relatively positive longer-term economic outcomes (that may serve to counter much of its associated headwinds) including: providing the Federal Reserve with all the cover it could possibly want to hold off on rate increases in the United States; a depreciated British pound that could spur economic activity for that country in the coming period; and a related ‘natural’ depreciation of the Chinese yuan relative to the US dollar, which is a necessity for ongoing Chinese economic stability. Furthermore, fears of a populist uprising appear to be prompting governments to consider more reflationary policies, which for the intermediate period should be supportive for global growth.

Finally, the ‘new normal’ at this point may be more similar volatility-inducing events, but we still believe that most of these anti-establishment events will end up being little more than a proverbial “fly” in the world’s Alphabet Soup, a nuisance certainly, but an event that can ultimately be looked through rather than dwelled upon.

In the meantime, our normal asset allocation approach is designed for times like these, with balance, diversification and a rebalancing discipline that looks to take advantage of volatility along the way.   Again, uncertainty is a fact of life and it’s important to remember that the market usually thrives on uncertainty, climbing the so-called ‘wall of worry’ as investor concerns are resolved over time.   Climbing that wall can be rewarding – except for those who choose not to climb it.

Alphabet Soup ‘Key’: EU (European Union), ECB (European Central Bank), FED (Federal Reserve), NAFTA (North American Free Trade Agreement), TPP (Trans Pacific Partnership), WTO (World Trade Organization), IMF (International Monetary Fund), NIRP (Negative Interest Rate Policy), QE (Quantitative Easing), ZIRP (Zero Interest Rate Policy), BREXIT (British vote to exit the EU), ABENOMICS (Japan’s fiscal stimulus program championed by Shinzo Abe).