Other than a few Tweets (@KirkSpano), I did not have much to say about the U.K. referendum regarding staying or leaving the European Union as it approached. I thought the speculation was so overdone and ill-informed that I decided to ignore the hype and prepare for whatever outcome. Here at Fundamental Trends, subscribers have known to hold extra cash, for about half of their portfolios, for quite a while. The last time we put a big cash hoard to work was August 24th, 2015 when the stock market opened down about 10% for no apparent reason.
As of this writing, about midnight the night the BREXIT is becoming official, U.S. stock market futures are down about 5%. Globally, we are seeing bigger sell-offs. The Nikkei is down about 8%, FTSE 100 Futures are down about 8%, the Pound Sterling is getting crushed down about 10% and crude oil is down about 6%. U.S. Treasury yields are falling towards a record low and gold is soaring. Will markets get worse on a further flight to safety? I sure hope so.
A subscriber asked me in the forum what I thought about what was going on with Brexit. You can see my reply even if you are not a subscriber as it is in one of the public sections. I use the word “stupid” several times. Here it is to save you a click:
“The rally this week was stupid. Whatever happens next will be stupid. If we get a big sell-off, maybe we’ll buy a few things.
Regardless of Brexit or Bremain, the market will correct to 1600s eventually, even if we see 2300s first. Bonds are overvalued, stocks are overvalued and commodities are undervalued.
With central banks keeping rates down so their gov’ments can borrow and finance cheap, the very real effect of crowding out is already happening and stagflation will eventually occur. Being cautious and waiting for the morons to hand you assets for anything they can get is the only course in a world dominated by trend following hyperactive computerized networked unethical and amoral traders who don’t really understand that they’re not just playing with fire, but they’re playing with atomic flamethrowers.
I am waiting for easier opportunities.
In the morning I’ll post about this whole thing when the results are in. I deliberately didn’t write about the stupidity of what was going on in markets and from the punditry because it was an over-hyped publicity stunt to get ratings an stir up trading.
For the record, the U.K. should leave the EU. The EU is doomed just like Japan is. The difference is that Europe could end up in war someday because that’s sort of their thing every once in awhile I guess Japan could duke it out with China. Bottom line, the world’s finances are WORSE than 2007, but don’t call it a bubble, because that’s passe. The central banks have it all under control.”
So, now we get some stupidity. Or, maybe we get some reality. It’s hard to tell with central banks trying to prevent reality at all costs. When I say all costs, I mean it. The ramifications of what the central banks have done since 2012 (from 2008-2011 they were right to bail and print money), is so over the top that ultimately the reality of “slow growth forever” will result in the monetary experimentation having vast consequences.
Interestingly, what people think is going to happen to the U.K. and EU is mostly wrong. The U.K. will come out of this better than being in the EU because the EU is fundamentally flawed. If the EU fixes itself, heck, the U.K. could rejoin down the road. This is hopefully a wake-up call to Brussels to fix their broken vessel. My guess is they don’t and they remain stubborn which leads to the destruction of the EU someday. In the meantime, expect rolling crisis in the Eurozone as Italian, Spanish, Greek and other banks require ECB assistance to survive. I do wonder just how much bad debt the ECB can take on given it doesn’t really have forever money printing ability. I’d bet the ECB ends up splitting into a good bank and a bad bank someday or just dissolving. We’ll see.
Here’s what I know for now. We have a list of ETFs we want to own that will benefit from major economic trends and our “Very Short List” (yes, that’s what we call it) of stocks that we want when the prices are right. Well, presuming the world hasn’t miraculously recovered by Friday morning, I will be a buyer of a few of the ETFs and stocks we have talked about in the forum, but not on Friday. Our basic approach will be to buy profitable companies on the right side of long-term trends that are trading at or below current fair value and far below future fair value of 2-4 years out, and to buy a few specific ETFs that will do well intermediate term that we will have to trade on occasion.
Now, I’m going to take a nap and set my alarm to be up early. Tomorrow is Friday. If the stock market futures are even lower in the morning, I really do suggest taking the day off from work because the buys you get might be amazing. At worst, you get a three day weekend.