Safety from the Abyss
The last two trading sessions have seen a quick and powerful march towards safe havens. Gold has been a benefactor from the concerns arising because of the Brexit vote. The GBP The GBP The GBP is the official currency of the United Kingdom. The GBP is a major currency and currently ra... More is the official currency of the United Kingdom. The GBP is a major currency and currently ra... More and EUR The EUR The EUR is the official currency of the European Union. Presently 19 out of the 28 collective nati... More is the official currency of the European Union. Presently 19 out of the 28 collective nati... More have both been punished by investors who have had to deal with outcome from the U.K. and they have had to make quick decisions on where to put their cash. Questions about systematic risks and potential crisis abound. In trading so far this Tuesday, the FTSE has seen some gains and the GBP has done better, can the short-term gains be sustained/
While the U.K. and its counterparts try to figure out the new Brexit terrain and its politicians create roadmaps, investors do not have time to stand idly as they protect their clients’ portfolios from the changing circumstances. Certainly there is a volatile spark in the broad markets that has been caused by investors being caught by surprise because of the Brexit result. However as of this afternoon, some semblance of stability has begun to creep back into Indices and the FX waters have been calmer.
There is a large difference between short-term gains which are rebounding off of lows and sustained gains though, and it will be up to the investment community to decide how they will handle the risks that become opportunistic in a speculative environment.
To name a few of the dangers are not hard, Monday saw two of the major ratings agencies via the S&P and Fitch downgrade sovereign debt from the U.K. from AAA to AA. Equity Indices if they continue to be brought under pressure, could begin to show cracks in banking corporations which could mean that Central Banks would have to intervene to prop them up, this includes banks in the U.K., the European continent and the U.S. under a worst case scenario. Crude Oil prices if pushed lower could sink through values that make it hard for energy companies to repay massive debts they owe to banks.
Thus the risks are real and it is up to investors to grasp the hysteria that is surrounding the mayhem and try to find a secure equilibrium where they can manoeuvre within their market psychology. The responsibility for creating a good investment landscape is on the shoulders of all market participants and the powers within the political domain.
If investors continue to look into the abyss without backing away and fail to remember that they are actually on firm ground the markets could continue to suffer. However, if investors acknowledge that there are in fact opportunities and that the land around them leads to other green pastures we could see the markets return to normal.
We still have a long summer ahead of us. Economic data from the U.S. was not inspiring on Friday with the poor results from the Durable Goods Orders and today the Final GDP will be published. It is not only the Brexit outcome that is making investors nervous, the decision by U.K. voters has certainly served as the catalyst for what has taken place in the broad markets the past few days, but this drama has been developing since the financial crisis of 2008 on many fronts. Central Banks and failed government policies globally are coming under the scrutiny of a public – the middle class which has not seen a return to normalcy in many cases.
The Brexit is a product of what transpired in 2008 and an inability to return to what were perceived as the ‘good old days’ by a public that wants to cast blame. The question now becomes who the public will blame next. The U.S. election is in November and there could be talk about other referendums via European nations who are not content with their plight.
Some investors have certainly poured a considerable amount of money into Gold in an effort to preserve capital. The precious metal has gained remarkably well the past few sessions and there is a growing battalion of analysts who believe that we may be seeing a bull A term used that indicates a market or a person believes an asset class will rise because of a prepo... More market in gold emerge.
However for a real bull A term used that indicates a market or a person believes an asset class will rise because of a prepo... More market to take place in gold it will not only need safe haven investors, but the gold market would need inflation In economics the term inflation In economics the term inflation In economics the term inflation refers to price values that are rising on a regular basis in which t... More refers to price values that are rising on a regular basis in which t... More refers to price values that are rising on a regular basis in which t... More too and at the moment inflation does not look like a real risk. However, Alan Greenspan during a Bloomberg interview yesterday pointed out that while inflation is currently low, a spike from inflation would be a real danger at this juncture because of the vulnerable positions of Central Banks worldwide due to the low growth figures globally. In essence Greenspan spoke about the problems stagflation would cause if it came into being.
The problem is one of safety for investors. Preservation in what are perceived as uncertain times is important, but many will want to speculate and risk some of their portfolio in order to attain better returns. Stocks, Indices, Commodities and FX are all still around, but it will take disciplined investors to walk through the forest at this time and not be unnerved by the market conditions that surround them.