A Case of Brexit Fatigue

Posted On Jun 28, 2016 By Dave Gonigam

  • One reader tired of Brexit, another tired of Rickards…
  • But here come the next aftershocks from the Brexit quake
  • Markets calm down for now… U.S. economy still cool
  • More from Obama on his newfound appreciation for the entrepreneur
  • Zuckerberg as “the guy everyone wants to emulate”… the poor planning of the “Leave” faction… the second appearance of the word “bollocks” in The 5’s 9-year history… and more!

“Consider a contrary opinion,” a reader wrote us yesterday.

We’ve spilled a lot of digital ink on “Brexit” the last week. Too much, in the estimation of this reader, who sent a link to an article at MarketWatch titled, “7 Reasons Not to Panic About Markets’ Reaction to Brexit.”

The writer is Brett Arends, who we’ve cited favorably in these virtual pages once or twice. “This too will pass,” is one of his seven reasons. Among the others: The European Union makes up only 17% of “real world economic output.” It’s not as if the EU and Great Britain will stop trading with each other. The bold can buy assets on the cheap at panic moments like these, and even conservative buy-and-hold types “can still take advantage of the sell-off to add to their holdings in international stock funds.”

We can’t quibble with much of that. And the market freakout of yesterday and Friday is calming down as we write this morning.

However…

“New earthquakes are coming soon as part of the Brexit aftershocks,” warns Jim Rickards.

Yes, we know. We’ve gotten some reader pushback on this score as well. “Your unmitigated constant sales pitch on Rickards’ writings is getting somewhat boring,” one wrote us recently.

Well in the first place, we think there’s value to Jim’s opinions even if they didn’t help sell newsletters and trading services. Besides, when readers of Rickards’ Intelligence Triggers have the chance to pull down 129% gains in 72 hours from a Brexit surprise… the trading services tend to sell themselves.

“Wall Street,” Jim says today, “will tell you that you cannot foresee shocks and you cannot ‘beat the market.’ Don’t believe it. While most market participants were shocked at the Brexit vote, we saw it coming a mile away using our proprietary models.”

So what next? For starters, while the British pound has tumbled 10% from last Thursday’s levels of $1.50, Jim anticipates there’s much more downside to come.

How much more from today’s levels of $1.32? Try 80 cents. That’s a call Jim made here back on May 9, assuming the “Leave” faction won.

He’s sticking with that figure. “Brexit is just the beginning,” he says, pointing to a likely move by Scotland to leave the U.K. so it can stay in the EU. Northern Ireland might do the same. Which leaves politicians in Wales jittery about being a mere appendage of England.

Meanwhile, “the EU is likely to take a punitive approach to the Brexit negotiations,” Jim says. “This will be done as ‘an example to the rest’ in order to head off other nationalist movements that want to quit the EU.”

This is already happening. EU leaders are rejecting any “informal” talks on the terms of a separation until Britain invokes Article 50 of the EU charter, starting a formal process — and a two-year clock on negotiations. Prime Minister David Cameron says he’ll leave it to his successor, whoever it is, to take that step… but Cameron’s resignation isn’t effective until October.

Another factor: “With the U.K. out of the EU, the European Central Bank will ban the settlement and clearance of euro-denominated transactions in London,” Jim adds.

“These transactions will have to be settled and cleared inside EU member nations in centers like Paris, Amsterdam and Milan. The result will be a diminution in London’s role as a financial center beyond what even the pessimists are currently predicting.”

And that’s not an exhaustive list. “Only a small portion of the impact of these events has been priced into markets already,” Jim concludes.

“Above all, these trends mean uncertainty. Markets have ways to price risk on a probabilistic basis, but markets have no way to price uncertainty where almost anything can happen. In these situations, markets go to the safest of safe havens, and that means cash, U.S. Treasuries and gold.”

We’ll leave it at that today. We get it: We’re a little weary of Brexit ourselves. On the other hand, it does represent a huge middle finger extended by everyday people toward the ruling elites. And it marks the first reversal of an ongoing “European integration” project going back to the original European Coal and Steel Community in 1951. Those count for a lot.

Meanwhile, readers of Rickards’ Intelligence Triggers got a new recommendation yesterday, playing off the post-Brexit fallout Jim anticipates. This one has the potential for at least 100% gains — maybe as much as 250% over the next 18 months. Check out Jim’s latest post-Brexit briefing at this link.

About those calming-down markets: Let’s take a quick survey…

  • The Dow industrials are up 1% as we write, at 17,319. Which is still below last Friday’s close, when the index took a 600-point spill
  • Gold is off nearly 1% at $1,312
  • The dollar index is pulling back a touch, to 96.1
  • The 10-year Treasury yield is up a tad, to 1.47%. Still looks as if that long-term support at 1.6% is broken
  • Crude has stabilized its free fall of recent days, up nearly $1 at $47.28.

The Commerce Department delivered its third and final guess at GDP for the first quarter this morning. It’s up an annualized 1.1% — better than the previous guess of 0.8% but still sickly, even by post-2008 standards.

Meanwhile, the acceleration in home prices is easing up, judging by the April Case-Shiller home price index. It’s up 5.4% year over year, compared with a 6% pace earlier in 2016.

Oy… President Obama sounds really serious about this entrepreneurship thing as his post-presidency hobbyhorse.

We took note yesterday of his backstage remarks at the recent Global Entrepreneurship Summit in Silicon Valley — hinting at some future Obama foundation that would give startups a shot in the arm. We also noted the irony that the number of startups has collapsed in post-2008 America — at least compared with the recoveries from the 2001 and 1991 recessions.

“Obama’s big post-presidency project is going to be entrepreneurship?” a reader snarks. “This from a guy that once said that he thought that communism and capitalism are pretty much similar? The Mogambo Guru was right, we are all FREAKIN’ DOOMED!!!”

In fairness, what the president told young people in Argentina a few months ago was that rather than get bogged down in ideological arguments, they should “just choose from what works.”

Anyway, here’s today’s follow-up: It turns out the president did an interview with Bloomberg a couple of weeks ago expounding on his newfound interest in startups.

Here’s the key passage: “Just to bring things full circle about innovation — the conversations I have with Silicon Valley and with venture capital pull together my interests in science and organization in a way I find really satisfying.

“You know, you think about something like precision medicine: the work we’ve done to try to build off of breakthroughs in the human genome; the fact that now you can have your personal genome mapped for a thousand bucks instead of $100,000; and the potential for us to identify what your tendencies are, and to sculpt medicines that are uniquely effective for you. That’s just an example of something I can sit and listen and talk to folks for hours about.”

Us, too, as it happens. We’ve been writing about the possibilities of personalized medicine here at Agora Financial since as long ago as 2009.

That said… the president’s remarks don’t convey to us a passionate desire to clear the way for startups to flourish and create scads of new jobs. They sound as if he wants to rub shoulders with venture-capital types doing “cool” stuff in high-tech and biotech.

Which makes sense in light of the post-2008 economy wrought by the White House, Congress and the Federal Reserve.

Aside from Wall Street and Washington, D.C., the Fed’s easy money has flowed mostly to Silicon Valley and the tech-biotech corridor in New England. For a while, it flowed to the shale energy patch, too.

But Main Street America? Not so much. (See the maps from yesterday’s episode of The 5.)

“Zuckerberg IS the face of 21st-century entrepreneurship,” a reader writes after we cast aspersions on the Facebook founder as well as the president during our musings yesterday.

“Hate to say it, but ‘Z’ is the guy everyone wants to emulate, and now is probably the best (if not last) chance any of us will ever have.

“Look back to the tech bubble and the companies that drove the industry: Microsoft, Intel, Cisco and Dell. They all produced something tangible that moved us along technologically. But FANG [Facebook, Amazon, Netflix, Google]? Three of the four are solely there to help us kill time, while Amazon is the Wal-Mart of cyberspace, and a huge chunk of the products sold there are time-killers as well.

“We no longer produce anything of value on shore, or at least not enough of it to make any sort of difference. We have become a consumer society with far too much time on our hands, and Zuckerberg figured out a way to help us kill that time and put a couple of bucks in his pocket at the same time. I just wish I’d been his roommate back in the day.

“Love you guys, no ‘buts’ about it.”

The 5: Here’s a question directed at the shrinking percentage of working-age adults who remain in the workforce: Do we really have “too much time on our hands”… or are we so busy working for the man and for more consumer-y crap that Facebook, etc., serve as a narcotic distraction from the relentless process of earning and getting and spending?

“Dave, great points about the elites’ insularity in the whole Brexit mess,” a reader writes. “Speaking of which, how disturbing is it that none of them seems to have any clue what to do now?

“Other than Jim Rickards and the Agora team, everyone — from politicians to market makers — was caught offside by the referendum. OK, maybe that’s understandable. Many people’s models and expectations were flawed.

“But no one seems to have any idea where to go from here! Even the ‘Leave’ camp has no plan and no unity. Hats off to the Brits for making such a courageous stand. Unfortunately, it’s exposing the bureaucrats for the idiots they really are. That’s likely to be very costly.”

The 5: That was Jim’s concern about the wisdom of the “Leave” vote, never mind the fact he’s on friendly terms with “Leave” firebrand Nigel Farage. Or as a fellow from Great Britain said in this space a few days ago, “The Brexit side does not have a clear plan.”

Hours after the election, Farage said it was a mistake for the “Leave” campaign to claim that the $465 million Britain sends to the EU could now be spent on the National Health Service instead.

Not exactly the environment that encourages a strong currency…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. “It’s because I really enjoy The 5 and the points of view like no others that I write this,” says a reader…

[Hey, nice variation on the old “I like The 5, but” trick…]

“In yesterday’s issue, there are three places where we were ‘invited’ to view ‘A SPECIAL FLASH CURRENCY WARS UPDATE.’ It even mentions, ‘He’s reserving this message for readers like you!’

“It’s bollocks to click on the link to go to yet another advertising setup to join Currency Wars Alert when you have stated that there is a special message reserved for readers like us, especially one not mentioned on recent TV interviews.

“We are readers and subscribers! We don’t want to constantly be fed other self-appreciating, shameless advertising.”

Heh… In the first place, we love it when anyone says “bollocks.” How can we not publish a letter like that?

But yes, we concede we probably laid it on too thick yesterday.

Here’s all we’ll say today: The Brexit turmoil gave Currency Wars Alert readers the chance to pocket two big gains yesterday — 100% in less than four months and 121% in less than eight months.

Yes, there’s more where that came from. Here’s where to get it.


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