What exactly are we seeing these days? Well, this past week revealed a whole slew of economic data out of the UK. There were retail sales, unemployment numbers, property sales, and CPI. With the exception of GDP numbers (which for Q3 won’t be out for quite a while) these are some of the most important, leading economic numbers that are released. And, across the board they tell the same story; Brexit has yet to have a meaningful effect on the British economy.

Looking at the above chart of the FTSE 100 (The Financial Times Stock Exchange 100 Index, the U.K.’s equivalent to the U.S.’s S&P 500), the market would seem to echo the sentiment expressed in the economic figures. The UK’s economy is chugging along quite nicely, as its market which hit new highs in August. How is it that, despite the incredible doom and gloom predicted if Brexit passed, things aren’t falling apart? There are many possible explanations, but we have a few theories that, taken together, could be driving the resilience.

The Brexit vote was not one of fear, but rather one of solidarity and unity. Thus, the British people are not scared, but are full of hope and anticipation for better times. An economy, while looked at from a top down perspective, is actually made up of the actions of all the individuals participating in the economy. If the people are feeling empowered, you’ll get expansion, not recession. This is highly evident in the retail sales and employment numbers from July, which were outstanding.

By leaving the EU, Great Britain has actually wed itself to a much stronger spouse. Realize that the EU is a bummer. Germany is doing well, but the rest of the guests in this house are freeloaders. Italy, Spain, Portugal, France…they all have issues. The UK has just shed itself of the burden of supporting its weaker siblings. And, simultaneously, has brought itself closer than ever to the US, its strategic ally and the only developed economy that is actually doing well these days.

The actual date of departure is a shifting target that continually gets further away. The latest headlines suggest that the actual Brexit might not happen until 2019. Seriously, do you think there’s going to be a mad rush to abandon the UK by foreign companies if Brexit isn’t even contemplated for a few years? Doubtful. Instead, there will be a measured approach, with much less near term impact.

These are three possible theories that could be driving the resilience in the UK; we’re sure there are others and economists will be debating this for a long time. What is not debatable, however, is the resilience in the economy and the strength in the FTSE. Also not debatable, but rather surprising in its persistence, is weakness in the British Pound.

The above chart is the same chart of the FTSE 100 overlaid against the British Pound (in orange). As you can see these two traded like two British Beefeaters, in perfect lockstep formation…right up until the day of the vote. Post the Brexit vote, the FTSE sold off, only to rally to all-time highs. The Pound Sterling, however, has gone down for the count.

What is driving down the Pound? We believe it’s the action of global macro hedge funds, piling on board the same trade. They have a tendency to do this frequently and, judging from the below chart printed this morning off of Bloomberg, this is possibly one of those situations.

Are the hedge funds right, however? Looking at the economic numbers out of the UK and the action in the FTSE, we don’t believe they are. Hedgies are looking for the UK to have to cut rates, which historically has hurt a currency. However, time are different now. Taking Japan as an example, they have negative rates and a very strong currency. So, we are not so sure this bet is a sure thing and from the perspective of Sylva International, things seem to be just fine in Britain and it  looks like it is time to buy the British Pound.

Random Musings From Our Travels (by Ross Silver)

Hello from the bottom of the ocean or wherever I am, it is me Ross Silver and yes I am still alive and kicking. I hope you are enjoying the content we have provided to date and we have plenty more to come including additional ideas to consider for your stock portfolio as well as random musings from me, Dan and others that will be joining the Sylva team/platform. Speaking of the platform, for those of you that think you have the skills to cut it as a newsletter writer and pick stocks that go up (not down) for a living, shoot us an email with your resume and some writing samples. We have been bombarded with resumes already but we want the best of the best on our site. Instead of posting as LT335 or whatever acronym or screen name you are using, use your own name and see if you can make the cut.

I will have more content next month but one thing worth mentioning is the Olympics and some of the “sports” that are considered “sports”. I am sorry but walking in no way should be considered an Olympic sport. I had a friend send me a clip from the Olympic walking event and I refused to open the clip given my stern belief that walking is not a sport. Speaking of walking apparently one of the contestants collapsed while walking during the event in the Olympics, I read this somewhere. How is that possible for someone who is considered to be an Olympic athlete? I can understand a runner collapsing but not a W-A-L-K-E-R. I walk every day to grab a sandwich for lunch and the past few days have decided to up my tempo in order to see if I could take walking seriously as a sport.

I plan on training in the mountains of the Northwest along with my dog and children. Perhaps there is an Olympics for animals and if so, my 8 lb Maltese Poodle can enter the walking event given she will be my training partner along with my kids. Hold back the jeers on me owning an 8 lb Maltese poodle, I wanted an Alaskan Husky my wife wanted a Maltese Poodle not a big surprise who won that one.

Anyways, we'll see you next week by which time I will have hopefully cut my walk from my office to the deli from 7 mins and 47 seconds to 7 mins and 37 seconds. You think I am kidding; I am going to time myself and keep a chart of my improvement. For those interested in sponsorship opportunities stay tuned. When I decide whether or not I am going to turn pro as a walker I will let you know and I am sure the flood gates will open from potential sponsors. Let me know if you want to be one. Meanwhile, enjoy the rest of the summer and be well!