SPECIAL EDITION — “Black Friday” Warning
- It’s not only Rickards invoking 2008 as “Brexit” looms
- Complacent markets on Tuesday… Banks conducting “war games” today
- Why markets will move tonight before the outcome is known… and what you can do now
- A sector that’s strangely immune to Brexit jitters
- Taking the pulse of two reliable recession indicators
- Victory for FedEx in a ridiculous case of prosecutorial overreach
[Urgent program note: Today’s episode of The 5 comes to you early. U.S. markets close at 4:00 p.m. EDT. The polls for the “Brexit” referendum in the U.K. close an hour later.
Futures markets and electronic trading platforms will likely start going berserk as the evening goes on and hedge funds trade on the results of exit polls they’ve privately commissioned. And tomorrow? No less than George Soros anticipates “Black Friday” if Britons vote to leave the European Union.
We can’t predict the outcome. But we can direct you to two trades with the potential to deliver big no matter what. Read on for details. Or if you’re impatient and want to cut to the chase, click here for Jim Rickards’ urgent presentation direct from London. Because of its time-sensitive nature, we’re taking it offline when the polls close at 5:00 p.m. EDT.]
And you might’ve thought Jim Rickards was engaged in hyperbole when he said tomorrow “could start the most devastating market crash since 2008.”
Let’s hear it from Mervyn Davies, the former chairman of the British banking giant Standard Chartered: “Everyone’s fearing a 2008 freeze of the wholesale markets.”
It’s right there on the front page of this morning’s Financial Times: “Queues formed outside foreign-exchange dealerships and banks conducted a final round of war games to stress-test systems amid mounting signs of tension in London’s financial center as Britons prepared to go to vote on whether to exit the EU.”
While everyday Britons are lined up at the polls, City of London pros are lined up to trade pounds for dollars. “I will stick it under the mattress,” a retail bank worker tells the salmon-colored rag.
The moment that’s only hours away has been building for the last 15 months. And Jim Rickards has been eyeing its approach the whole time.
Parliament was dissolved on March 30, 2015 — setting the table for an election. Prime Minister David Cameron had promised if his Conservatives won (and they did), he’d let Britons vote in a referendum on withdrawal from the European Union.
Jim went on record in Rickards’ Strategic Intelligence: “If the referendum passes and the U.K. leaves the EU, it will be a historic blunder.”
Don’t get him wrong: Jim sympathizes with how the “Leave” crowd is chafing under the rule of “eurocrats” in Brussels. The problem, he anticipates, would be this: “The U.K. will be left alone with reduced linkages to the EU and very little gold relative to their GDP and money supply. This could presage a sterling crisis, which could be a catalyst for a crisis of confidence in all major global currencies by 2016.”
Thus the near-panic that’s setting in today in London — which marks a stunning turnaround in just 48 hours.
On Tuesday, we noted a complacency that had settled into the financial sector. Opinion polls were pointing to a victory for the “Remain” side. Markets were pricing in a “Remain” victory.
Later that evening, The Wall Street Journal posted an article also pointing up that complacency: “Little attention has been paid to the core assumptions investors are making.
“In particular, moves in sterling and in British government bonds, known as gilts, demonstrate a broad belief that the pound’s fall will be pronounced but not catastrophic, and that the Bank of England will ignore any imported inflation.”
But that was so 48 hours ago. Says the Financial Times today: “Banks said regulators had demanded a stress test that modelled for a 20% fall in sterling.”
We’re not sure what to say about that. Better late than never?
Jim Rickards isn’t surprised. “I think the Brexit movement is being underestimated by the elites. Elites are usually the last to know. The more powerful, the more ‘plugged in’ these elites are, the more out of touch they become with popular sentiment. They dine with each other, they fly around in private jets with one another, they assemble in places like Davos together. So they live in a cocoon, insulated from popular opinion.”
The Trump phenomenon here in the United States likewise caught them off-guard. Now with a “Leave” vote just as likely as a “Remain,” they’re scrambling.
So what sort of market impact can we expect?
As Jim’s emphasized all week, the impact will become known well before markets reopen tomorrow morning. Hedge funds have commissioned their own exit polls. They will trade on that information. It’ll show up in the futures markets and the electronic trading platforms.
“If ‘Leave’ wins,” says Jim, “there may be a dramatic collapse in stock prices, the pound sterling and the euro. There could also be a spike in gold.
“If ‘Remain’ wins, gold may tick down a bit. But not much, because it has already traded off based on some of the late polling data indicating ‘Remain’ has the edge.”
Knowing that, what should you do? What can you do?
Jim’s proprietary market-timing indicator is serving up two clear “buy” signals right now. It has the potential to skyrocket if the “Leave” faction wins and there’s a market earthquake. But even if the “Remain” side wins, these two plays are still positioned to profit — just over a slightly longer time frame.
“This is a fantastic trading opportunity for you,” Jim says. But with the polls closing only hours from now, it’s all academic if you don’t jump on it this afternoon. Jim’s briefing from London will be out-of-date when the polls close at 5:00 here and the hedge funds swing into action. Give a look right now while there’s still time.
For the moment, U.S. stocks are in rally mode, the S&P 500 up three-quarters of a percent and cresting the 2,100 level.
Gold sits near where it did 24 hours ago, at $1,263. The 10-year Treasury yield is likewise little moved at 1.72%.
The big economic number of the day is new home sales — down 6% in May, but that was after a silly-high reading in April. The May number is still the second best since the “recovery” began in 2009.
Don’t look now, but the volatile biotech sector appears to be tuning out all the “Brexit” noise.
When we left you yesterday, the day’s early gains in the broad market had all vaporized. By the close, the major indexes were in the red. “But biotechs fought higher amid the market’s whipsaw action,” says Greg Guenthner of our trading desk.
That’s a powerful signal. Biotechs typically get crushed when investors flee risk and seek “safe” names. “These are the stocks you’d normally knock down a few pegs when the going gets tough. That’s why it was surprising to see these stocks take the lead on Wednesday as the major averages tanked.
“These sickly stocks are finally showing some signs of life — and could be putting in another choppy bottom…
“Yesterday’s reversal,” Greg concludes, “could be the start of another bottom-bouncing biotech rally.”
Two of the most powerful recession indicators are pointing to — well, not a recession, but a definite slowdown.
Yesterday, the Philadelphia Fed delivered its state coincident index — which crunches four employment indicators from each of the 50 states. It runs on a scale from minus 100 to plus 100. Readings of plus 50 or lower have reliably signaled recessions going back to the early 1980s.
The latest reading for May is plus 60. Not a surefire recession call, but it’s the weakest reading since late 2010.
This morning brought the Chicago Fed National Activity Index — which crunches no less than 85 economic numbers into one composite figure. Here, three-month average readings of minus 0.7 or lower have signaled all but one recession going back to 1970. (It was late with the 1973 “oil shock.”)
The latest reading for May is minus 0.36.
There’s nothing in either number to suggest the Federal Reserve will raise interest rates before December — if then.
For once, sanity reigns in the federal courts… and FedEx is off the hook in a damned-if-you-do, damned-if-you-don’t case.
Two years ago, we chronicled how federal prosecutors hit FedEx with 11 criminal counts for delivering prescription drugs sold by illegal internet pharmacies.
“The advent of internet pharmacies allowed the cheap and easy distribution of massive amounts of illegal prescription drugs to every corner of the United States,” tut-tutted U.S. Attorney Melinda Haag, “while allowing perpetrators to conceal their identities through the anonymity the internet provides.”
FedEx said it tried its damnedest to cooperate, asking again and again for the feds to give it a list of illegal online pharmacies — which it never got. “The government is suggesting that FedEx assume criminal responsibility for the legality of the contents of the millions of packages that we pick up and deliver every day,” said a FedEx spokesman. “We are a transportation company — we are not law enforcement.”
Fast-forward to this month and a federal judge all but laughed the case out of court.
“The court concludes the defendants are factually innocent,” ruled Judge Charles Breyer. “They did not have criminal intent.” Noting FedEx’s attempts to cooperate, he said, “The DEA was unwilling or incapable of providing that information to FedEx,” Breyer said. “Rather, the government decided to pursue this novel prosecution.”
“When judges call something ‘novel,’ it’s rarely because they’re impressed,” notes Tim Cushing at Techdirt. “‘Novel’ is a polite way of saying ‘bull****.’”
So the Justice Department has now dropped the case after two years and however many millions FedEx threw away on lawyers.
But the prosecutor who brought the case — the aforementioned Melinda Haag — was spared any embarrassment or career damage. Earlier this year, she bailed and returned to her cushy gig at a San Francisco law firm.
“The Brexit vote is of no consequence,” a reader writes with a most contrarian take.
“The politicos have a vote after the people and will make sure they stay in. They have a slim margin, but it only takes a one-vote margin to stay in.
“The people’s vote won’t count. The political class wins again. Why don’t you and Jim know about this?”
The 5: C’mon, have you been paying attention? Twice in recent weeks, Jim has pointed out that even in the event of a “Leave” victory, Parliament gets the last word… and a supermajority in Parliament wants to stay in the EU.
And that’s all very interesting from a dynamics-of-the-power-elite standpoint. But it’s finance and investing that are our primary beat… and the outcome of this election is no doubt a market-moving event.
“No consequence”? Au contraire, says Jim: “Today may not rank with D-Day, the Battle of Hastings or Agincourt on the short list of events every British schoolchild must memorize. Yet the day is an important turning point, nonetheless. What happens has the potential to disrupt global markets and wipe out your wealth in totally unexpected ways.”
Again, Jim’s video warning from London will be out-of-date in a few more hours. Best check it out right now.
“The joke could have been funnier,” a reader writes as for a third day we milk the saga of the Chinese bank employee who spanked some trainees in front of their colleagues.
Yesterday, someone wrote in to say, “Although the Communist Party carries a big stick, the Chinese banks are too big to paddle!”
Today’s reader rewrites it to say, “The Chinese banks are too big to FLAIL.”
“Sorry, I can never resist a bad pun. One of my many faults. Love The 5!”
The 5: Thanks for the comic relief, lest we take ourselves too seriously — even on a day like today…
The 5 Min. Forecast
P.S. For the last time: Jim’s proprietary market timing indicator says the “Brexit” outcome could begin to set off a crash tonight in the futures markets and electronic trading platforms.
The video Jim has recorded to explain the gravity of the situation will be out-of-date when the polls close in Britain at 10:00 p.m. in London — 5:00 p.m. EDT. Click here to watch it immediately.