Brexit Part Deux: The Cat’s Out Of The Bag

I’ll be surprised if there isn’t a post Brexit rally. That is once the market calms down, and realizes that this is a non-binding agreement which no one in England has the conviction to carry out. But that doesn’t change the fact that the cat is out of the bag.

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The market’s weakest links have been exposed. European bank shares have sold off. Sovereign bond yields have hit new lows. The entire Swiss curve is negative and Japan is not far behind. The Yen hit a new multi year high. I keep coming back to the Yen, because this shooting star is doing the exact opposite of what the BOJ intends.

Now Grant forgot to mention sovereign bonds, but he’s 100% correct. The assets most heavily influenced by central banks are going haywire, and if that doesn’t terrify you, I don’t know what will.

I don’t think this is the end, but my positioning is already quite defensive. I’m not quite at the nuclear fallout underground bunker stage that my fellow O’Dea (although he spells it differently), Crispin, is, but if things implode I should do quite well.

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As I said in my previous article, I believe the Brexit is a single catalyst in a chain that is growing at an accelerated rate. This certainly won’t be the last event that pushes the globe into a recession or even a crisis but it is a loud and noticeable one that is finally forcing the market to face the fact that its been running on air for the past few years.

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Until that next catalyst arrives, things may stabilize and I could take a hit on a lot of my positions. Especially considering that US GDP for Q2 is still tracking above 2.5%, and a good jobs number with higher revisions from previous months could lead to a lot of flows into US equities which I am heavily short.

I’ve learned it’s important to psychologically prepare for such events so that I do not panic and stick to my convictions which have done quite well so far. If there is a big rally I will be ready to add to my current positions. Another idea, which I won’t do, but will closely follow is buying English banks which have had their worst 2 days in history. If there is a relief rally, these stocks could outperform.

 

 

One thought on “Brexit Part Deux: The Cat’s Out Of The Bag

  1. Pingback: Brexit Shrugged: #BankHealthMatters – The Klendathu Capitalist

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