-- Published: Tuesday, 28 June 2016 | Print | Disqus
My Two Cents
By Andy Sutton and Graham Mehl
A week postrexit and many will wonder what changed – if anything. In fact (and you’ll have to take our word for it) we started this column on the night of the vote; before the results were known publicly.
We started the night of Brexit because of two realities. First, we didn’t know what would happen, but it was in fact happening as we corresponded and composed. Second, we didn’t need the results of the vote to know that in some ways nothing has changed, yet in others, everything has changed. We’re going to get to some other economic news in a bit here, but bear with us for a paragraph or two.
Brexit was and is everything because it was the first referendum by a first world nation, not so much on the EU even though leaving the EU was the issue voted on, but on the concept of the EU. Brexit was and is about divorcing from globalism itself and the tenets of globalism. Brexit is about being a nation again, not a doormat. It has everything to do with freedom and patriotism and people coming together even though the nation was still divided. It was about people getting their heads out of the sand and embracing something, then owning it, for better or for worse. In today’s world of bleating sheep, Brexit is a HUGE move. It is everything. And the establishment lost on June 23rd, regardless of how the vote turned out.
The establishment lost because there was a vote in the first place. It lost because it hasn’t conquered the minds and spirit of the people of England. It is our hope that Brexit doesn’t stop on 6/23, but in fact that Thursday becomes a new April 19, 1775. Not when one nation went against another, but when the world woke up and engaged the establishment globalists and marked the beginning of the end of globalist domination. The battle is far from over. The EU is in shambles economically and politically and it is nowhere near unified. Approval ratings are near all-time lows in many member nations – mostly ones where the EU’s draconian economic policies and back-room deals have gutted already fragile economies. Think of Greece.
At the same time, Brexit means almost nothing. In practice, that is. Why such a stark contrast? Because of so many groups we’ve allowed ourselves to be subjugated to, the EU was nothing more than a rubberstamp organization for other globalist entities. Brexit in concept is far from nothing, but in practice, we are all still under the same thumbs we were before the votes were counted on 6/23. Now that is divergence.
In the end, however, 6/23/16 will go down in history. And regardless of what any media pundit says, the final outcome in the battle against globalism and its stranglehold on humanity is still very much undecided. It will be determined by you, by us, together.
Post BREXIT – A Shock or a Shuck and Jive?
We continue the day after; June 24, 2016. An amazing night for freedom and freedom loving people. Interestingly enough, much of the UK media, although divided, seemed to have reached the consensus that the vote was going to be to remain in the European Union, but it was going to be close. We’ll admit to being pro-Brexit from the beginning and while skeptical it would actually come to pass, we were shocked when the vote swung early in what people in the US would call ‘swing states’. We watched our tickers and saw market after market, index after index, and currency pair after pair make moves the likes of which we haven’t seen since 2008.
So of course, this got us to thinking ‘If ‘LEAVE’ becomes a reality, then what happens?’ The British Government was firmly against leaving the EU and David Cameron has already resigned, which was the right move and he gets kudos even if we disagree with his political and economic leanings. The establishment loves its globalism and England leaving the EU is certainly going to make it harder on the EU in terms of its very existence. Worse, Brexit might get other nations who have been similarly oppressed by Brussels thinking they should leave too. We mention Germany specifically. A German exit would end the EU almost instantaneously.
Motives, Means, and Opportunities
We know, as do many of you, that the establishment globalists are opportunistic. Is it possible they didn’t meddle in the election quite as much as they could have because they can make some mileage out of Brexit? The massive moves last night made some people a lot of money no doubt. They also caused a lot of people to lose money by the trainload. So maybe the establishment actually wanted Brexit because it will allow them to do some things that would have been otherwise very difficult.
Keep in mind, there are still a bunch of global governance groups that have strangleholds on the world – not just England. We went over examples of these in our last piece. The EU, in many cases, would merely copy whitepaper proposals or actual rules put in place by these groups. So, from that perspective, certain things won’t change. The globalist establishment still has firm control over the Bank of England and we must remember the quote from Mayer Amschel Rothschild: “Give me control over a nation’s money supply and I care not who makes its laws”. The globalist establishment still has firm control over the Bank of England.
Granted, England never dumped the Pound Sterling in favor of the Euro, which was a solid strategic idea and one of the reasons Brexit was even possible. Still, there is work to be done and the Bank of England must be reigned in, forced to be transparent, and divorced from the globalist banking cartel. Fortunately the British people have the power of the referendum available to them to achieve these measures by voting, however, we surmise such a move would run into considerably more resistance.
The point of these observations is not to throw cold water on a proud moment for England, but to point out that there is more work to be done and the time to do it is now, while the momentum is strong. The same goes for other nations who might be thinking about referenda of their own. The conditions are perfect. In the end it matters not if Brexit occurring was actually a shock or whether it was ‘allowed’ to happen by the establishment for other means, the bottom line is it did happen.
The Fallout – US Interest Rates
One of the first reactions to the fact that England would be leaving the EU was a massive spike in USGovt debt. Apparently people still don’t understand the idea that it is patently absurd to give your money to an institution that is functionally insolvent. But that is precisely what happened. The knee-jerk reaction was a flight to ‘safety’. We’ll quickly grant that the not-so-USFed and banking system has managed to pretty much walk between the raindrops since 2008 when they browbeat a couple of coelenterate Congressmen into giving Henry Paulson, former CEO of Goldman Sachs, carte blanche with $750 billion, which he promptly gave to his buddies in the big bankster world.
However, one only needs to look at the exploding US national debt to understand that, given its current trajectory, there is no way it is going to end well. That said, the system is still pretty much intact. If nothing else, it shows the desperation involved. We must point out that all of this activity happened last night while US Markets were closed to the average trader. So this wasn’t average Joe money that was moving around last night. This was, for the most part, big money. Some would say smart money. You can see from the chart above the massive spike that started within a few hours of the vote counting in England. Over the next 7 hours, the 30-year bond would spike roughly 5 percent. Things have calmed a bit as the day went on today; action which almost always favors the insider money.
Possibly even more important that the perhaps foolish ‘flight to safety’ is the effect it will have on interest rates. Much of the yield curve in the US is already negative. The Core CPI as released by the Bureau of Labor Statistics shows that prices rose 2.2%. Note the yield chart below for the month of June 2016, particularly the last row – the day after Brexit:
Based on 6/24/16, ONLY the 30-year Bond yield is still positive. The rest of the yield curve is underwater like a McMansion in 2007 – or today. Don’t forget, we used the official Bureau of Labor Statistics ‘Core’ CPI that is so popular with the mainstream press. Most of you will readily admit that your own personal cost of living is much higher than 2.2% on an annualized basis. So if you’re willing to TRUST the USGovt with your money for 30 years, you can make .22% interest per year based on today’s data. Yet the ‘smart money’ is flocking to this ‘safe haven’. Yes, the world truly is upside down.
And as we continue to put this article together, bond prices keep going up, which means yields are going down. It is very likely, given the early action so far on Monday 6/27/16, that the entire yield curve will be negative – across all durations by market close today. Unreal. We are not sure people actually understand the importance of this. Let’s try to simplify. You’ve got people practically stepping over each other to buy an asset that is backed by a government that is so far in the hole that it has to follow the air bubbles to see which way is up. And for the ‘privilege’ of owning this busted government’s baloney paper, you get to LOSE purchasing power each year. And this is a good idea how? We’ve already received several emails about this and have been told it is no big deal because ‘interest rates will go up, then the yield will be positive again’. Ok, so maybe that happens, but what has to happen to the price of the bond for interest rates to go up? It needs to fall. So they lose anyway. This is only the beginning.
More Fallout – The Market Smash Continues
Monday’s market action has already brought about a continuation of the big moves witnessed Friday. It is starting to look like the shuck and jive is on with regards to Brexit and there appear to be several possible pathways moving forward. Again, remember that the globalists are still running the show at this point. Nobody seriously doubts the big money boys who have so much to gain by the slavery that is the EU will just pack up their stuff and go home. Although we sincerely wish they would.
Just to give a couple examples of what has transpired since the vote on Friday, the Dow Jones Industrials (as of 15:59 GMT on 6/27/2016) has given up more than 900 points. Gold is up nearly $100/ounce. The British pound lost 9+% to the USDollar Friday and is set to lose another 4% today. Keep in mind the situation regarding the USDollar. Strong dollar mouthpieces will no doubt use this bit of news to point to a ‘strong USDollar’ and how it is a sign of how powerful the USEconomy is. Not so fast. These figures only show perceptions of one currency and its value in terms of another currency. It is no show of strength for the USDollar, but merely a show of (perceived) weakness for the Pound Sterling.
The Yen has strengthened considerably against other currencies, prompting the Bank of Japan to promise to ‘stabilize’ (rig) markets. Nobody wants a strong currency because everyone wants to export goods. The US doesn’t mind so much because it mostly exports inflation and a stronger dollar helps US consumers purchase more imported junk and thus through the gates goes the inflation. Oddly enough, the Brexit vote pretty much slammed the door shut on raising interest rates anytime in the next dog’s life. Not that the door wasn’t already shut as it was, but now Yelling Yellen has cover to actually CUT rates in July. The markets are betting that’s exactly what happens too. Not that 25 bps means anything – the initial hike after two thirds of a decade at 0 was nothing more than symbolic to begin with. Another cut back to 0 will be more of the same.
Possible Scenarios Moving Forward
The question on everyone’s mind is ‘What’s going to happen next?’ Will the vote stand? Will Parliament butt in? Will the EU stand for this open slap in the face? Will other nations exit? Given that there are now around 8 nations where a possible referendum has been mentioned, it is too complex to even begin to analyze the various combinations of stay/leave. We’ll stick to Brexit for now since that has happened. We see three leading scenarios at this point. This could all change before this article even gets emailed out, but here goes nothing:
1) The establishment tries to trigger another vote by the petition that is now circulating with over 2 million signatures on it. This is a risky move because they could lose again, especially if they aren’t as adept in fixing elections in England as they are in America for example. On the positive side, this will take time and all the while there will be uncertainty. Uncertainty equals volatility and volatility equals profits for these guys. It must be said that there is a risk to continued global crisis. First of all they might end up triggering something that is not able to be controlled. Too much of a good thing sometimes comes back to bite. Secondly, there is already enough uncertainty and tension globally. There is already a push in as many as 8 other EU nations for referenda of their own. If that momentum continues to swell, the EU might be toast anyway.
2) The establishment tries to effect a reversal of the Brexit vote by using Parliament instead of another risky election. Parliament is full of bought and paid for shills. We reference how the pressure in 2008 got Congress to buckle on the bailout money. Parliament is no different. If the establishment wants to negate or reverse Brexit, this is probably their highest percentage move. It comes with the negatives of option #1 – mainly that it takes time. And 17+ million British people might not take kindly to being ripped off either.
3) This is probably the worst possibility, although we are quite certain some of you creative types could come up with something more sinister. The establishment allows Brexit to stand and instead of trying to get the vote reversed or vacated by Parliament, the establishment just pours it on both financially and economically. Stocks have already taken a serious nosedive as has the British Pound. Moody’s waded into this mess(again) and downgraded all of Britain’s bonds based on the uncertainty of the climate right now. This is going to quickly come to bear on the British people. The establishment may want a pound of flesh (no pun intended) and take a chunk of Britain for their own and end up with the British people begging to get back into the EU. There are some serious sociopaths among the elite and this would not surprise us in the least.
However, there is one big problem with option #3. It is that the world’s economy is already fragile and in recession. The Baltic Dry Index (seen above) has been stair-stepping its way downward for most of the last two and a half years. We’ve already discussed the bond bubble in the US. Prior to this latest mess, Bill Gross stated he believed there were at least $10 trillion worth of negative rate bonds in the US when all maturities were considered. That number has certainly gone up in the last few days. GDP is awful – globally. So the establishment sociopaths better watch how much damage they decide to inflict. They make an awful lot of money from the status quo and we wouldn’t think they’d be interested in killing the goose that lays the golden eggs – namely, the US Consumetariat.
We would also add that the more exits, the merrier, especially in terms of Scenario #3 listed above. It is hard to punish the whole class. One student sure, but not the whole group. The same applies here. A mass exodus from the EU would make it very difficult for anyone to pin any sort of real economic pain on England. But by the same token, if there is a mass exodus, it is going to cause even more confusion and uncertainty and everyone might end up getting punished anyway. Our guess is that (as ridiculous as this sounds) if things really get amped up, the USDollar, USGovt Bonds, the Yen and Gold are going to be the hiding places. This would guarantee an explosion in the US Bond bubble of epic proportions and probably the Yen too. Abenomics is a joke and it is clear the BOJ is willing to sell its entire country down the river just to keep a cheap currency. The same goes for the USDollar with regards to the now absurd yield curve. Depending on how this all turns out, the Keynesian money-printers may end up getting killed by their own monster after all.
One final thought: America should pay attention to what happens in England. There is a pretty simple overlay between what is going on there right now and what will happen in the US in just a few short months. America doesn’t really have nearly the choice the British did, but the same matters lie in the balance nonetheless.
Graham Mehl is a pseudonym. He currently works for a hedge fund and is responsible for economic forecasting and modeling. He has a graduate degree with honors from The Wharton School of the University of Pennsylvania among his educational achievements. Prior to his current position, he served as an economic research associate for a G7 central bank.
Andy Sutton is the former Chief Market Strategist for Sutton & Associates. While no longer involved in the investment community, Andy continues to perform his own research and acts as a freelance writer, publishing occasional ‘My Two Cents’ articles. Andy also maintains a blog called ‘Extemporania’ at http://www.andysutton.com/blog.
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-- Published: Tuesday, 28 June 2016 | E-Mail | Print | Source: GoldSeek.com