It has become standard operating procedure for the FED to enter the market in an effort to minimize the impact of any low probability event with market disrupting outcomes.The BREXIT vote surprised the markets but the FED allowed investors to absorb the financial pain and stayed in the watchtower.
In the previous post, I opined that the financial implications from Brexit were hyped because of fear of the unknown and had no idea that this event was a possibility. The airwaves have been filled with the bloviators expounding with such certainty about events about which they knew little, until the stock markets plummeted. News anchors matched the idiocy as they stood in London streets providing photo backdrops to the “young fascists” protesting to redo the referendum as if it were a tee-ball game or AYSO soccer tournament. Adding angst to entire drama was the predictable behavior from the PLUTOCRATS and Bureaucrats of the EU whose main desire is to punish the British for the audacity to challenge the established order.
The EUROCRATS are attempting to invoke the Greek and Cypriot playbook by threatening the Brits with economic catastrophe as a lesson to any others thinking about departing from the European Union. The most dangerous of all the European bosses is Jean-Claude Juncker. He is threatening the Brits and doing the heavy lifting for German Chancellor Merkel, and, of course, the sniveling, cowering French President Hollande.
In an interview with the German financial daily Handelsblatt, Juncker called it an absurd idea that the currency zone could fail. Juncker went further and made it clear: “We have the instruments of torture in the basement and we’ll show them when it’s necessary.The problem is, when everyone knows that there is this locker full of tools in the eurozone, no one sees the necessity of ambitiously putting his budget in order. So I can only tell you that the tools are there.”
Yes, Brussels can threaten and cajole but London is not Athens. The Brits also have a counterweight to the French and that is the nuclear power plant to be built at the England site of Hinckley Point. This is a monster project for the French firm EDF and with Germany closing its nuclear energy plants, France is in need of all customers in an effort to continue its world-class nuclear energy infrastructure development business. (EDF is 85% owned by the French Government.) Punishing the U.K. will be far more difficult than those nations lacked in to the strictures of the EURO. The markets have begun to realize that this “divorce” will take a great deal of time and be far more complicated than the President Juncker will openly admit.
***While the writ of divorce is filed on the Brexit referendum, the sands of time will keep shifting and politics in many of the other 27 EU nations will continue to complicate the landscape. Time is on the side of the Brits so my advice to London is look to Big Ben. It is easy for Juncker to bully the EU meek but be assured that President Hollande of France will not be pushed by any bureaucrats from Brussels. Add to the potential toxic brew: The face of Vladimir Putin looms from the East as the global “agent provocateur” is smelling the blood of a wounded political entity. There will be no quiet on the Eastern Front.
***The opinion of Larry Summers continues to crowd the media in an effort to push forward a massive global fiscal stimulus program. Professor Summers’ impact is growing as the world leaders are desperately searching for something to still the discontented voices of the global Brexiters. It is time for action and with central banks all tangled up in red,it is time to unveil massive infrastructure programs.
Again, watch the large global engineering corporations as well as their global suppliers. Providing further support to such an effort was the ECB President Draghi’s loud call yesterday for G-20 nations to do more to supplant moribund monetary policy. In my eyeing my massive trading matrix, COPPER is breaking out above the 200-day moving average as we come into quarter and month ends. This may be a meaningless signal but I will pay attention for it is hard to fathom that with all the new stress in the global system–Brexit, China, Japan, European banks, slowing U.S. growth etc.–COPPER IS FINDING SOME STRENGTH. Just an important variable which to be aware.
***The equity markets have rallied strongly this week and the FOOTSIE closed above the high made on June 22, before the Brexit vote. What’s problematic for the Brussels crowd is the large European domestic banks have not regained pre-Brexit prices. In fact, some are down more than 25% since the day of European infamy.The markets are pointing to severe problems looming for the European financial regulators. The British are Going, the British Are Going–small change relative to mounting problems in the European financial realm. Have a GREAT FOURTH OF JULY.