Is Brexit A Black Swan For Stocks?; Oil Heading To $35 — Or, $85; German Bonds Go Negative For 1st Time In History; Negative Bond Yields Equivalent To – ‘Smoking A Cigar In The Dynamite Shed;’ Next Internet Takeover Targets?
It depends on who you ask; but, if I had to bet, I’d say there is likely to be selling of equities heading into the vote on the 23rd/ and perhaps for a few days afterward if the vote is to leave. On the other hand, if the decision by Brits is to remain in the EU, we could see a sharp upside rally. In the former, which if I were voting is to leave the EU, the dollar will strengthen, and gold will rally. If the vote is to stay, then you likely get the opposite. But, because of negative interest rates, one has to believe the gold rally has legs. Markets do not like uncertainty, and the pending Brexit vote is providing that in spades. Expect more volatility, a flight to safety, higher gold prices north of $1,300, a stronger dollar, and a weaker pound, Euro, and lower oil prices. The Brexit vote right now is a toss-up, with sentiment apparently building for a yes vote to leave the EU.
Brexit ‘flu’ spread across European stock indices, with the German DAX down 1.43%; the French CAC down 2.3%; and, the Spanish IBEX 35 off 2.13%, close to the lows of the day, and some there down nearly 5 percent. Banks and financials are getting crushed, down as much as 9 percent in just the past 4-5 trading days.
Carter Worth, formerly Chief Technical Analyst at Oppenheimer, and currently with the analytical and investment firm – CornerStone Macro, was a guest on CNBC’s Fast Money last night (Mon./June 13) and he believes the U.S. stock market is about to have a June swoon. Stock indices across the globe have been getting hammered — due in part to the uncertainty over the pending Brexit vote. Mr. Worth, who is well respected on the street contends that the U.S. stock market can stay decoupled from the rest of the world for only so long; and, he thinks we’re close to that point where the U.S. stock market starts performing closer to its European counterparts. For example, the Japanese Nikkie is down 24 percent thus far in 2016, while the European Stoxx 600 is down 20 percent; and, the U.S. Russell 3000 is down only 3 percent. It is time to get defensive if you haven’t already — IMO.
Oil Headed For $35, And $85?
Matt Smith, Director of Commodity Research at Clipper Data LLC., was interviewed on CNBC last week and he argued that “the oil market was missing something big.” He does not believe oil is a good investment in the short term and believes the black gold could be headed back to the low $40 range; and, wouldn’t be surprised if we see $35 by the end of summer — before rallying in the fall. Mr. Smith bases his argument on the fact that “China is importing so much oil — it is insane.” Beijing is importing 1M more barrels of oil per day than they can use; and, are using lower oil prices to fill its strategic oil reserve — somewhere in the neighborhood of 135M – 155m barrels. Mr. Smith believes China will reach full strategic reserve capacity within the next few weeks. When they do, 1M more barrels of oil isn’t going to be purchased. Add this to the end of the summer driving season, and a global economic slowdown — and you get a pullback in prices to the low $40s range.
Longer term — 9-12 months, Michael Rothman, CornetStone Analytics told CNBC that he is standing by his prediction of $85 oil in the next 12 months.
German 10-Year Bund Goes Negative For First Time In History
The German 10-Year Bund went negative for the first time in history; and a development that is not good. The rush to negative interest rates is in essence — saying the Central Banks are out of bullets and clueless as to what to do next. Moving to negative interest rates has been described by market mavens as akin to: “Smoking a cigar in the dynamite room.” V/R, RCP
Next Internet Takeover Targets
In the aftermath of the news that Microsoft would be buying LinkedIn, CNBC asked Who Else Is Likely To Get Acquired? We already know Yahoo is going somewhere. Victor Anthony, with Axiom Capital Management, told CNBC today that the most likely Internet takeover candidates are: Twitter, Pandora, Shutterfly, and XO Group — with the most likely acquirers to be Google, FaceBook, and Alibaba. All for now. V/R, RCP