It's a Very Dangerous Time in the Financial Markets
'Brexit' fears grow... 'Leave' is now in the lead... Is George Soros really bearish?... Another billionaire investor speaks out... 'It's a very dangerous time in the financial markets'...
The latest polls suggest that British citizens in favor of a Brexit – a U.K. exit from the European Union ("EU") – are now in the majority...
A Friday poll by market analytics firm ORB International and British newspaper The Independent showed that 55% of respondents are in favor of leaving the EU, while 45% want to stay.
The results of two other surveys this weekend were less extreme, but they also put the "leave" vote slightly ahead of "remain."
Following this weekend's news, the British pound weakened this morning to a new two-month low of $1.41 compared with the dollar. It's now down more than 4% this year – a relatively large move for a major currency – and is quickly closing in on its seven-year low of $1.38 (set in February).
Anything is possible, but we wouldn't bet on a Brexit today.
Call us cynical, but far too much money and political power is at stake for the EU establishment to allow the U.K. to leave without a fight. Expect these bureaucrats and politicians to step up their efforts as the June 23 referendum approaches.
In the meantime, expect volatility. Whatever the result, the pound could be in for a big move following the decision...
According to a Bloomberg survey of economists, most believe the pound could jump to $1.50 – a gain of about 6% from today's value – if voters choose to remain in the EU. On the other hand, those surveyed believe a Brexit vote could cause the pound to crash to $1.30 or lower.
This would push the pound to new a 30-year low, and represent a drop of 8%-plus from today's value. This would also be the biggest move on record... even bigger than the Black Wednesday crash in 1992, when George Soros famously "broke" the Bank of England.
Last week, we noted Soros has returned to trading...
The Wall Street Journal reported that the legendary investor had come out of retirement earlier this year. He personally directed his fund's big bullish bet on gold and gold stocks and its bearish bet on the S&P 500.
But some in the financial media have been critical of the report. In particular, critics have questioned whether Soros is as bearish as the Journal implied.
Because Soros' fund operates as a family office, they note that he doesn't have to answer to investors or shareholders. He can reverse positions quickly if necessary. And he can afford to be wrong.
They also note that these bets were reported in the fund's latest quarterly filing with the U.S. Securities and Exchange Commission ("SEC"). This means Soros held those positions as of March 31, but there is no guarantee he still holds them today.
These points are correct... But we think critics are missing the most important point...
Eighty-five-year-old Soros came out of retirement – a retirement he promised in January 2015 would be his last – to make these bets himself.
Would he do this if he weren't convinced a major opportunity – a "large market shift," as the Journal put it – was at hand?
Soros made his fortune betting on big macro trends. But what you may not realize is most of those bets took advantage of government-created distortions.
Market legend Stanley Druckenmiller – a former manager of Soros' Quantum Fund and a legendary investor himself – explained this idea in an excellent interview last spring...
My second mentor was George Soros... But it's funny because I went over there, I thought what I would learn would be like what makes the yen go up, what makes the deutsche mark move, what makes this, and to my really big surprise, I was as proficient as he was, maybe more so, in predicting trends.
That's not what I learned from George Soros, but I learned something incredibly valuable, and that is when you see it, to bet big...
One of the things I would say is about 80% of the big, big money we made was in bear markets and equities because crazy things were going on in response to what I would call central-bank mistakes during that 30-year period.
Druckenmiller pointed to the run-up to the housing crash and financial crisis as a classic example of this strategy in action...
We had great conviction that the Federal Reserve was making a mistake with way-too-loose monetary policy. We didn't know how it was going to manifest itself, but we were on alert that this is going to end very badly.
Sure enough... were able to figure out by mid-'05 that this thing was going to end in a spectacular housing bust, which had been engendered by the Federal Reserve's too-loose monetary policy and end in a deflationary event...
My returns weren't very good in '06 because I was a little early, but '07 and '08 were – they were a lot of fun.
Druckenmiller said he was experiencing "a very strong sense of déjà vu" at the time, and is even more bearish today.
He believes the biggest central-bank mistake in history is going to end in disaster. We'd be willing to bet Soros agrees.
Billionaire fund manager Paul Singer certainly does...
In a recent interview with Institutional Investor, the founder of Elliott Management Corporation warned that central banks' "monetary extremism" is nearing its endgame...
The large rise in asset prices in conjunction with continued sluggish growth is a terrible mixture, and it is part of the equation of why you have this bubbling-up edginess in society among the middle and working class in the developed world because of underemployment.
The cure for the crisis – for the debt crisis, the financial crisis – has been deemed by the developed world governments to be more debt. There has not been a deleveraging.
And after seven and a half years and counting of this mix of policies, at the moment we're either in a stage of stagnation or rollover, possibly in the early stages of a global recession. So I think it's a very dangerous time in the financial markets.
Like Druckenmiller and Soros, Singer's thoughts on the market will sound familiar...
We're very bullish on gold, which is the anti-paper money, of course, and is underowned by investors around the world.
And we are very skeptical about markets. We hedge every equity position.
We're not in the mood to be surprised – surprised in the sense of losing large amounts of money – ever, but in particular now with this extraordinary and unprecedented situation where the stability of financial markets is so dependent on confidence in policy makers and central bankers.
Finally, a quick reminder that has nothing to do with investing or the markets...
Father's Day is quickly approaching. If you've been looking for the perfect gift for the man who has everything, it's not too late.
Until tonight at midnight Eastern time, Porter is offering an exclusive OneBlade Father's Day Kit at a special price.
This kit includes his luxury OneBlade razor, solid-steel razor stand, and 10 Japanese Feather blades... along with a top-quality Super Badger-hair shaving brush, handmade in England by Vulfix... and a three-piece set of premium preshave cream, shaving cream, and aftershave balm from Castle Forbes.
In short, the OneBlade Father's Day Kit includes everything the father in your life needs to have the best shave ever.
All orders include free FedEx shipping, along with premium gift wrapping and receipt. You can even have it sent directly to your recipient if you choose.
Even better, you can get it all for the best price Porter has ever offered. He even agreed to throw in a free $50 online gift card with every purchase... Meaning you can get the full Father's Day Kit for less than the usual cost of a OneBlade razor alone.
Again, to make sure every order arrives in time for Father's Day, Porter can only offer this incredible deal until tonight at midnight Eastern time. If you're interested, he must hear from you tonight. Click here for the details.
New 52-week highs (as of 6/10/16): Franco-Nevada (FNV), Johnson & Johnson (JNJ), Altria (MO), Nuveen AMT-Free Municipal Income Fund (NEA), Nuveen Municipal Value Fund (NUV), AT&T (T), and PIMCO 25+ Year Zero Coupon U.S. Treasury Index Fund (ZROZ).
In today's mailbag, a comment on George Soros and a subscriber question on TradeStops. Send your letters to feedback@stansberryresearch.com.
"George Soros is a total scumbag and it would be helpful if you didn't gloss over that fact while talking up your book." – Paid-up subscriber Bob M.
Brill comment: We called him a statist. Is there anything worse? All kidding aside, we aren't fans of his politics, but there's no denying he's one of the most successful investors in history. We believe you can appreciate the latter without condoning the former.
"One of your readers provided the following feedback on TradeStops: 'Previously I was flying by the seat of my pants, selecting funds that had done well in the past with absolutely no clue as to allocation. When I plugged my four previous funds into TradeStops, I found that all had long since stopped out. I replaced them with four funds that triggered entry signals within the past two months. The result is an $11,000 gain. The other major accomplishment is in my brokerage account. I had gotten burned so many times that I had half of it sitting in cash. TradeStops has provided me with the tools to put that money to work. Thank you.' The reader says that he used TradeStops to trigger entry signals into four funds. I was not aware that TradeStops had that kind of feature. Thanks." – Paid-up subscriber OP
Brill comment: That's right, OP. TradeStops is so much more than a trailing-stop tracker. In addition to helping you know exactly when to sell, it now has tools to help you know when to buy, how much money to put into any position, when to buy back into a position after you get stopped out, and even whether or not a given stock or fund makes sense for your portfolio.
If you haven't seen the new TradeStops, you owe it to yourself to check it out. You can learn more here.
Regards,
Justin Brill
Baltimore, Maryland
June 13, 2016
|