Here are the two key items to watch in the aftermath of the Brexit vote.  But first, allow me to say how pathetic it is that you won’t read about either one of them in the Canadian media. Why? Because with the notable exceptions of Rex Murphy, Terrance Corcoran and Colby Cosh – the media continually sings from the establishment songbook – along with organized labour, crony capitalists, politicians and the educational establishment. 

I’ll get lots of time to go into that further in my editorials, so for now let me say that not one commentator in the country predicted Brexit and shows any sign of understanding it. To say the outcome was a surprise is mindboggling – given the massive rise of anti-EU sentiment through-out Europe well before this vote.  

Obviously not a surprise to Moneytalks listeners given I have been talking about the demise of the EU since April, 2010  – and once the vote was announced in 2013 unequivocally stated that it would mark a key date in the EU’s demise. And there is so much more to come.

The Key Points

1. It’s a big mistake to think that this was about politics.  Just like the volatility in currencies, stocks etc – the political volatility is a by-product of economics and finance. Hence look to events in those two areas to illuminate what comes next.

The changes through-out the Western World will be driven by debt problem, lack of economic growth and massive entitlement failures. Issues like the gross mishandling of the refugee influx simply exacerbates social problems and becomes a lightening rod for the underlying economic and financial problems.

The anti-establishment sentiment that has seems to have just dawned on media commentators is rooted in economic and financial failure – not politics, which guarantees so much more turmoil to come.

2. This is huge. The euro is no longer going to be consider a global currency. There will be a massive rebalancing of portfolios to reflect that.  But where will the money go? My consistent position has been that the first choice will be the US dollar. Before Brexit – there were only 3 ½ currencies in the world that can absorb major capital flows – the US dollar, the euro, the yen – and the half part, the pound.

The euro is now out – Japan’s economic stagnation and demographic problems make it less attractive – and the future of the pound is up in the air. Hence – I continue to look to the US dollar and US denominate assets as the big beneficiary.

Stocks

The markets reacted to the uncertainty – fueled by the outrageous remarks of the “remain” side leaders like David Cameron who said that a “leave” vote would result in a world war – the International Institute of Finance called it Europe’s Lehman Moment – ie triggering another global credit disaster.

As usual they overreacted so now the short term tug of war will be between those forced to meet margin calls by selling – and bargain hunters. Keep in mind that this is a single story driven market event and those moves usually last 2 to 3 days. In this case it may be even shorter. If you were going to sell because of Brexit – you probably already have – Monday at the latest.

So the key for the markets is – what’s next in terms of big stories. The one that worries me is the precarious financial position of the Euro banks, who are already in big trouble. If negative news on that front hits then expect a lot of negative market follow- through.  I promise the central banks are well aware of this and are prepared to do whatever it takes to prevent a credit induced liquidation.

Overall – I still think that in the long term a major bull market in US stocks will be fueled by huge outflows of capital from Europe over the next four years.

One more warning

China’s currency manipulation is a major threat to global finances. Further devaluation or floating it would cause massive disruption. More on this later…

Gold

For the first time in 6 years, gold reacted as a safe haven along with the predictable up moves in the US$ and bonds, Swiss bonds and German bonds. The fact that gold joined this group in the immediate aftermath of the vote is significant in the short term.

I don’t know if I’m stuck on my own scenario but I still think the big move comes when confidence in the US drops. The move right now is a reflection of waning confidence in the EU.

What’s promising is that major investors are considering gold as an alternative currency.  They’re taking long term positions – and I think they’ll be rewarded when the US dollar comes into question. 

Here are the two key items to watch in the aftermath of the Brexit vote.  But first, allow me to say how pathetic it is that you won’t read about either one of them in the Canadian media. Why? Because with the notable exceptions of Rex Murphy, Terrance Corcoran and Colby Cosh – the media continually sings from the establishment songbook – along with organized labour, crony capitalists, politicians and the educational establishment. 

I’ll get lots of time to go into that further in my editorials, so for now let me say that not one commentator in the country predicted Brexit and shows any sign of understanding it. To say the outcome was a surprise is mindboggling – given the massive rise of anti-EU sentiment through-out Europe well before this vote.  

Obviously not a surprise to Moneytalks listeners given I have been talking about the demise of the EU since April, 2010  – and once the vote was announced in 2013 unequivocally stated that it would mark a key date in the EU’s demise. And there is so much more to come.

The Key Points

1. It’s a big mistake to think that this was about politics.  Just like the volatility in currencies, stocks etc – the political volatility is a by-product of economics and finance. Hence look to events in those two areas to illuminate what comes next.

The changes through-out the Western World will be driven by debt problem, lack of economic growth and massive entitlement failures. Issues like the gross mishandling of the refugee influx simply exacerbates social problems and becomes a lightening rod for the underlying economic and financial problems.

The anti-establishment sentiment that has seems to have just dawned on media commentators is rooted in economic and financial failure – not politics, which guarantees so much more turmoil to come.

2. This is huge. The euro is no longer going to be consider a global currency. There will be a massive rebalancing of portfolios to reflect that.  But where will the money go? My consistent position has been that the first choice will be the US dollar. Before Brexit – there were only 3 ½ currencies in the world that can absorb major capital flows – the US dollar, the euro, the yen – and the half part, the pound.

The euro is now out – Japan’s economic stagnation and demographic problems make it less attractive – and the future of the pound is up in the air. Hence – I continue to look to the US dollar and US denominate assets as the big beneficiary.

Stocks

The markets reacted to the uncertainty – fueled by the outrageous remarks of the “remain” side leaders like David Cameron who said that a “leave” vote would result in a world war – the International Institute of Finance called it Europe’s Lehman Moment – ie triggering another global credit disaster.

As usual they overreacted so now the short term tug of war will be between those forced to meet margin calls by selling – and bargain hunters. Keep in mind that this is a single story driven market event and those moves usually last 2 to 3 days. In this case it may be even shorter. If you were going to sell because of Brexit – you probably already have – Monday at the latest.

So the key for the markets is – what’s next in terms of big stories. The one that worries me is the precarious financial position of the Euro banks, who are already in big trouble. If negative news on that front hits then expect a lot of negative market follow- through.  I promise the central banks are well aware of this and are prepared to do whatever it takes to prevent a credit induced liquidation.

Overall – I still think that in the long term a major bull market in US stocks will be fueled by huge outflows of capital from Europe over the next four years.

One more warning

China’s currency manipulation is a major threat to global finances. Further devaluation or floating it would cause massive disruption. More on this later…

Gold

For the first time in 6 years, gold reacted as a safe haven along with the predictable up moves in the US$ and bonds, Swiss bonds and German bonds. The fact that gold joined this group in the immediate aftermath of the vote is significant in the short term.

I don’t know if I’m stuck on my own scenario but I still think the big move comes when confidence in the US drops. The move right now is a reflection of waning confidence in the EU.

What’s promising is that major investors are considering gold as an alternative