This Week in Barrons – 6-19-2016:
Lately I’m wondering if Clueless was simply a 1995 movie staring Alicia Silverstone, or whether it was the ‘shape of things to come’.
1st off, Happy Father’s Day to all of you lucky fathers out there.
Thanks to SF for reminding me of the British (musical) invasion of the 60’s and 70’s prompting: “The British are Coming, The British are Coming”, could be played in reverse this week. We could be witness to an even greater rallying cry: “The British are Leaving" – as a British vote to exit the European Union (BrExit) looms on June 23. Fearful of the BrExit vote, the German 10-year bond has gone negative for the first time in history. That’s right; traders have gone ‘Clueless’ and are putting their cash into something that is essentially a money-losing investment, due to rising BrExit concerns. A vote YES to BrExit is expected to have a huge negative impact on British and European jobs, trade and markets.
Current British polls show major moves toward exiting the EU, but the impending outcome is still too close to call. (FYI: The bookies are betting on Britain remaining in the EU.) However, a couple BrExit elements are fairly clear:
- If YES to BrExit, approximately 5,000 financial service jobs (and people) would be transferred back into the EU – as their ‘passporting’ privileges would be revoked.
- Voter turnout will be key, as referendum turnout levels have decreased steadily from 70% to less than 50% lately. The smaller the turnout, the more it could be swayed by the BrExit coalition.
- Polling shows us that: (a) over 50% of British citizenry believe that the EU undermines their very identity, (b) over 50% realize that Britain’s economy will decline if they leave the EU, and (c) over 50% of the BrExit supporters are over 55 years old.
- Many of the factors fueling Donald Trump’s campaign in the U.S. – low wage growth, declining living standards, disruptive labor market forces such as technology, immigration and globalization – have also been especially prevalent with the pro-BrExit supporters.
- For the EU, the June 23rd referendum comes at an arguably terrible time given: slow economic growth, simmering Greek tensions, migrant pressures, and increasing skepticism surrounding the stability of the Euro.
- The number of EU nationals working in the UK has tripled over the past 10 years, and migrant figures are rising at a record pace. BrExit supporters have emphasized weak wage growth and security risks from migrants as central issues – very much paralleling the Trump presidential campaign.
On a brighter note, it’s becoming even clearer that our Congress is ‘Clueless’ about the economy and the shirking of their fiscal duties until after the general election in November. As an example of this, Ms. Yellen is due to speak on Capital Hill next week, and one of the pre-released talking points is: “Could a Trump victory hurt the economy?” My quick advice to Congress is to concentrate on elements that you know and on ‘getting stuff done’ – and leave the speculation to the media.
Finally, fewer than one in three U.S. teens obtains a summer job.
The number of summer jobs that 16 to 19 year olds have secured is down 14% from last year. And last year that same number was nearly 11% lower than the year before. This is part of a decades-long trend. While more than half of teenagers worked summer jobs in the 1970s and 1980s, these days fewer than one in three do.
One reason for the decline is that teens are choosing not to work. Many of them are volunteering, enrolling in educational programs or doing other things that may enhance their college applications. But also – there are just fewer opportunities. Restaurants and retail outlets are still hiring teens, but not as many as in the past, because they simply don’t need as many workers to meet seasonal demand. And while teens continue to have opportunities in the classic summer job settings such as: summer camps, neighborhood pools, and amusement parks – that number is not growing.
Experts see this as having a detrimental impact on teens because of the sought after experience gained working a summer job. Summer jobs help teens learn accountability, grit, and how to deal with situations where you don’t LIKE everything. Summer jobs develop responsibility and teach the value of money, even more than volunteering. This decline could continue until we change the college admissions process. Currently, while some college admissions officers value paid work, many look more favorably on a great volunteering experience. It’s a shame that working for the local muffler shop might not sound as good on a college application as working on ‘curing world hunger’ for a charity .
All of this leaves me wondering if ‘Clueless’ was just a movie staring Alicia Silverstone in 1995, or a disease that is slowly creeping into virtually everything we do?
This is just a normal market right? Early last week: (a) Japan’s economy received a downgrade, (b) European markets felt the pressure and were RED by a lot, (c) the Orlando had a horrific terrorist shooting, and (d) by 10 AM the S&P was down by all of 1 point. Now you can tell me that this was just millions of investors, all at the same time, buying the dip – and I'll laugh at you. Because this action was clearly our buddies at the Federal Reserve, the European Central Bank, the Swiss National Bank, the Bank of Japan and others making sure we didn't roll into a pull back. When the dust settled, we only lost 25 points on the S&P for the week. Not a terrible amount actually, given our own FED put in a big time ‘stick save’ on Thursday.
- On Monday, Tuesday and Wednesday – fearful of a BrExit, the markets were soggy.
- On Thursday, the market was getting really ugly with the DOW down 175 points and the S&P down 20 – all by 11am.
- Then (all of a sudden) there was panic buying as Jo Cox (the British Labour Party’s rising star) was shot dead with a handgun in England.
- The markets rose because both sides of the BrExit vote had decided to suspend their campaigns in respect of Ms. Cox.
- The markets also figured that the BrExit vote would be delayed until July, and rallied over 270 DOW points to end the day up 93.
- On Friday came the news that the BrExit vote is still ‘on’, and our markets became soggy again, ending the day down 58 on the DOW and down 7 on the S&P.
This begs the question: Aren't handguns illegal in England? According to the English rifle and gun club legal center, “Any person possessing a firearm in the U.K. must posses a Shotgun Certificate or a Firearm Certificate. Machine guns, pepper spray, semi-automatic, and pump-action rifles, and any firearm that has a barrel less than 30 centimeters in length are prohibited. All handguns, semi-automatic and pump-action non-rim-fire rifles are prohibited.” So very simply: If people want to do evil – they will find a way.
Last week was lumpy, and only made worse by the FED’s refusal to raise interest rates. The FED also REDUCED the number of interest rate increases that they plan on unleashing in 2016 from 4 to 1. That tells me that all of my whining about the economy being in the toilet is (unfortunately) on the right track, and the FED’s rosy pictures from earlier in the year were simply baloney.
The BrExit vote is still on, but it's too close to call. I would personally love to see them leave, but they probably won't. Therefore, I expect a stagnant market on Monday and Tuesday, with some possible extra movement on Wednesday if the polls start to show a really big lead in either direction: stay or leave. By Thursday morning we will have the results. If they vote to ‘stay’, the markets will put in a relief rally and move higher on the news. If they vote to ‘leave’, the markets may put on a bravado face for a bit – but ultimately will head lower.
Plan accordingly, because it could be a wild week.
- Long various mining stocks: AG, AUY, CDE, FCX, FFMGF, FSM, NGD, and PAAS,
- And Long an oil supplier: REN.
To follow me on Twitter.com and on StockTwits.com to get my daily thoughts aand trades – my handle is: taylorpamm.
Please be safe out there!
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Until next week – be safe.