By Tyler Durden
Euro Stoxx 50 Futures have collapsed over 11% at the open… the biggest single-day crash in Rhhistory…
The question is – do the central banks rush in to save the world (and prove Brexit wasn’t so bad after all), or do they fiddle while Rome burns?
Source: European Stocks Crash Most In History
By Tyler Durden
Just as we warned, the historic British rejection of the EU’s totalitarian rule has sparked renewed ambitions to leave the clutches of Brussels across Europe. First to congratulate Britain was Holland’s Geert Wilders, who calls for a Dutch referendum as soon as possible…
Thursday, June 23, 2016, will go down in history as Britain’s Independence Day.
The Europhile elite has been defeated. Britain points Europe the way to the future and to liberation. It is time for a new start, relying on our own strength and sovereignty. Also in the Netherlands.
A recent survey (EenVandaag, Dutch television) shows that a majority of the Dutch want a referendum on EU membership. It also shows that more Dutch are in favour of exit than of remaining in the EU.
The Dutch people deserve a referendum as well. The Party for Freedom consequently demands a referendum on NExit, a Dutch EU exit.
As quickly as possible the Dutch need to get the opportunity to have their say about Dutch membership of the European Union.
Geert Wilders: “We want be in charge of our own country, our own money, our own borders, and our own immigration policy. If I become prime minister, there will be a referendum in the Netherlands on leaving the European Union as well. Let the Dutch people decide.”
Meanwhile, Europe is a bloodbath…This is the biggest drop in EURUSD (DEMUSD) since 1978!!
as NExit looms…
Source: "Now It’s Our Turn" – Geert Wilders Calls For A Dutch Referendum
Investors around the world went into crisis mode as results showed British voters have chosen to leave the European Union in a stunning decision. …read more
Source: Markets in crisis mode as U.K. votes to leave European Union
With investors on razor’s edge, markets around the world turned sharply negative as initial results from the British referendum on European Union membership showed a nail-bitingly close vote. …read more
Source: Markets around the world start freaking out
By Tyler Durden
The presence of a negative relationship between uncertainty and economic activity seems intuitive. Presumably, as Goldman explains, more uncertainty reduces the incentive for firms and households to engage in economic transactions that are costly to reverse (e.g., investments, hiring, purchases of durable goods). To the extent that this is the case, one would expect the resulting dampening effect on aggregate demand and economic activity to ebb as the fog of uncertainty clears.
But the consequences of an uncertainty shock may prove more malign than typically assumed.
To paraphrase former Fed Governor Jeremy C. Stein, uncertainty “gets in all the cracks”: it distorts economic decisions and behavior through numerous channels, in a manner that policymakers cannot easily restrain. Indeed, recent academic research argues that, when such dynamics become self-fulfilling and/or self-perpetuating, spikes in uncertainty (as witnessed in 2008-09) can lead to financial turmoil, as well as to a pronounced slowdown in activity.
And so, judging by the economic uncertainties of the following nations, there is one country that stands out…
The “sanctioned” and “increasingly alone” Russians see near record low levels of economic uncertainty… which may explain why their currrency, bonds, and stock market are all doing so well in recent months.
Source: Goldman Sachs
Source: Spot The Odd One Out – Political Uncertainty Edition
When less stuff is being bought, sold and shipped around the country with each passing month, how in the world can the U.S. economy be in “good shape”? Unlike official government statistics which are often based largely on projections, assumptions and numbers seemingly made up out of thin air, the Cass Freight index is based on real transactions conducted by real shipping companies. And what the Cass Freight Index is telling us about the state of the U.S. economy in 2016 lines up perfectly with all of the other statistics that are clearly indicating that we have now shifted into recession mode.
If you are not familiar with the Cass Freight Index, here is a definition of the index from the official Cass website…
Since 1995, the Cass Freight Index™ has been a trusted measure of North American freight volumes and expenditures. Our monthly Cass Freight Index Report provides valuable insight into freight trends as they relate to other economic and supply chain indicators and the overall economy.
Data within the Index includes all domestic freight modes and is derived from $25 billion in freight transactions processed by Cass annually on behalf of its client base of hundreds of large shippers. These companies represent a broad sampling of industries including consumer packaged goods, food, automotive, chemical, OEM, retail and heavy equipment. Annual freight volume per organization ranges from $1 million to over $1 billion. The diversity of shippers and aggregate volume provide a statistically valid representation of North American shipping activity.
When they say “all domestic freight modes”, that includes air, rail, truck, etc. As you are about to see, the total amount of stuff that is being bought, sold and shipped around the country by all these various methods has now been declining for 15 months in a row.
If it was just one or two months you could say that it was just an anomaly, but how in the world can anyone explain away 15 consecutive months?
Not only that, but the brand new number that just came out for May 2016 is the lowest number that we have seen for the month of May in 6 years.
Of course the number for April was the lowest number that we have seen for that month in 6 years too, and the number for March was also the lowest number that we have seen for that month in 6 years.
Are you starting to get the picture?
Below is some analysis of these numbers and a chart from Wolf Richter…
The Index is not seasonally or otherwise adjusted, so it shows strong seasonal patterns. In the chart below, the red line with black markers is for 2016. The colorful spaghetti above that line represents the years 2011 through 2015. The only month this year that was not the worst month since 2010 was February; only February 2011 was worse. That’s how bad it has gotten in the Freight sector:
“Truck tonnage continues to slide for both linehaul and spot markets,” according to the report. And railroads are also singing the …read more
Source: The Amount Of Stuff Being Bought, Sold And Shipped Around The U.S. Hits The Lowest Level In 6 Years
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Today is the Brexit vote.
When this ends, the world can move on to the other numerous Black Swans waiting to hit.
Firstly, the consensus is that the US is the early stages of a recovery. Consensus believes GDP growth will be 2.5%+ this year.
This is happening when the labor market conditions index, industrial production, C&I loan delinquencies, and sales to inventory ratios are all screaming “recession.”
Secondly, stocks are pricing in economic perfection. Earnings have fallen to 2012 levels. Stocks are 30% above that level.
Thirdly, China is set for another massive round of devaluation. The very issue that crashed markets in August 2015 has not gone away.
There are countless other black swans lurking in the financial system (corporate debt bubble, EU bank crisis, Greece debt forgiveness, $9 US Dollar carry trade, etc.). NONE of them are positive.
More and more, the markets feel like they did in late 2007/ early 2008: when stocks held up based on hype and hope that Central Banks could put off another Crash.
On that note, we are already preparing our clients for this with a 21-page investment report titled the Stock Market Crash Survival Guide.
In it, we outline the coming crash will unfold…which investments w
ill perform best… and how to take out “crash” insurance trades that will pay out huge returns during a market collapse.
We are giving away just 1,000 copies of this report for FREE to the public.
To pick up yours, swing by:
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Best Regards
Phoenix Capital Research
Source: The Markets Are in "Late 2007/ Early 2008" All Over Again
By Tyler Durden
'Hope & Change' and devolved into Nope & Deranged… Since the start of President Obama's second term, Goldman Sachs note that the Partisan Conflict Index has averaged 50% higher than its 30 year average. So who is to blame? President Obama's divisiveness? Or The Federal Reserve's extremely accommodative monetary polict removing any need for actual decision-making?
Get back to work Mr. Chair(wo)man!!
As we previoously noted, while President Obama's progressive agenda has not endeered a “reaching across the aisle” moment, we place the blame squarely at the foot of The Federal Reserve and one look at the chart below shows the surge in “conflict” since The Fed started printing money, slashing rates, and enabling largesse…
We have said for many years that accommodative monetary policy completely removes the burden from politicians that would require them to actually make difficult decisions around fiscal reforms, and now Standard & Poor's is saying the same thing.
Speaking in London on Tuesday, S&P's top EMEA analyst Moritz Kraemer said that there was a strong relationship between government bond yields, an indicator of how much countries must pay to borrow, and their willingness to undertake structural reforms. “All of these (reform) efforts from the governments have really fallen by the wayside under the palliative that the ECB is providing” Kramer told the Euromoney Global Borrowers & Bond Investors Forum.
As the ECB policymakers have been urging governments to take advantage of the easy financing conditions to implement reforms, Kramer points out what everyone other than central planners have already figured out, which is that as long as the central banks monetize the debt, why face political difficulties and enact reforms – “The moment the pressure goes away, the action goes away as well” Kramer said.
Kramer also pointed out that in a normal interest rate environment, government deficits across the bloc would be 1.5 to 2 percentage points of GDP higher, which would force the issue of reform up the agenda for many nations.
Simply put, as we have tried to convey repeatedly over the years. As long as the central banks will continue to monetize the government's debt, and continue to push trillions of sovereign debt into negative yields, no pressure will ever be felt by any government to change its ways.
Source: America’s Seen 50% Surge In Partisan Conflict Since Obama’s Second Term Started
By Tyler Durden
In a twist worthy of a soap opera, just minutes after Sky and the major newswires reported that Nigel Farage said “looks like Remain will edge it”, a Nigel Farage spokesman told Bloomberg that “he never conceded. He looked at the prevailing weather and was honest. We’re not saying it’s over. We haven’t had a single bloody vote counted”, even as just moments later, wires also reported that Farage told his PA that “the UK has voted to remain in the EU.”
In any event, and Farage is quite right about this – without a single vote counted – the suspense over Brexit appears over, and reopening S&P futs were spiked 13 points higher, hitting 2,119 and less than 1% from all time highs.
Cable likewise jumped and rose above 1.15 moments ago…
.. although it has since trimmed some of its gains and was back under 1.15 at last check. As Bloomberg adds, leveraged accounts that bought GBP just after U.K. polls closed have trimmed positions after a post-voting survey sent the currency higher, according to an Asia-based FX trader.
Source: Farage Denies Conceding: “We Haven’t Had A Single Bloody Vote Counted”; S&P Futures Surge
By Tyler Durden
Submitted by Lance Roberts via RealInvestmentAdvice.com,
My friend, Anora Mahmudova, recently wrote for MarketWatch about Mohamed El-Erian’s discussion on the importance of “cash” for investors.
“At a breakfast meeting with reporters on Monday, the former Pacific Investment Management Company chief executive said central bank asset purchases have successfully decoupled asset prices from fundamentals and distorted traditional correlations.
‘Investors cannot rely on correlations as a risk mitigator, making cash a very valuable thing to have.
It can give your portfolio resilience during stressful times, optionality—whether you use it for tactical or strategic purposes and flexibility to deploy it when necessary.’
Central banks are finding it harder and harder to repress volatility in financial markets, and any jolts, such as currency devaluation in China or political events, such as Brexit, result in wild swings in the markets.’
El-Erian also said years of unconventional monetary policy, including asset purchases, and a lack of fiscal stimulus are making developed economies less stable.”
Whenever El-Erian makes comments about the value of holding cash, there is generally a good bit of media lash-back about relating to the impacts of inflation and the inability to successfully navigate market cycles.
El-Erian’s comments are a valuation call, driven to excess by monetary interventions, on the financial markets suggesting that having capital invested will likely yield substantially lower or negative returns in the future. This is an extremely important concept in understanding the “real value of cash.”
The chart below shows the inflation-adjusted return of $100 invested in the S&P 500 (using data provided by Dr. Robert Shiller). The chart also shows Dr. Shiller’s CAPE ratio. However, I have capped the CAPE ratio at 23x earnings which has historically been the peak of secular bull markets in the past. Lastly, I calculated a simple cash/stock switching model which buys stocks at a CAPE ratio of 6x or less and moves to cash at a ratio of 23x.
I have adjusted the value of holding cash for the annual inflation rate which is why during the sharp rise in inflation in the 1970’s there is a downward slope in the value of cash. However, while the value of cash is adjusted for purchasing power in terms of acquiring goods or services in the future, the impact of inflation on cash as an asset with respect to reinvestment may be different since asset prices are negatively impacted by spiking inflation. In such an event, cash gains purchasing power parity in the future if assets prices fall more than inflation rises.
While no individual could effectively manage money this way, the importance of “cash” as an asset class is revealed. While the cash did lose relative purchasing power, due to inflation, the benefits of having capital to invest at low valuations produced substantial outperformance over waiting for previously destroyed investment capital to recover.
While we can debate over methodologies, allocations, etc., the point here is that “time frames” are crucial in the discussion of cash as an asset class. If an individual …read more
Source: The Fed’s 3rd Mandate & The Value Of Cash
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