Monday, June 27, 2016

Special Mid Month Crisis Watch Update - Reaction to Brexit

I had promised readers here that I would do a monthly "Crisis Watch" reviewing what a wide variety of sources I follow are saying about the potential for another major global financial crisis. I also said if a significant event were to happen in between the updates I would try to provide an article on it.

In this case we have the Brexit vote which clearly is a significant event with the potential to lead into another major financial crisis. So, will that happen? I don't know. It has not happened so far. Stock markets on Friday were sharply lower and safe havens (the US dollar and gold) were sharply higher, but no systemic crisis threat emerged on Friday. Markets and banks were not closed for example, despite some news rumors that could happen. On the other hand, it's very early in this event and if there are large financial entities out there taking big hits from these sharp market moves, we may not find out about that right away. It's simply an unknown for now.

I think the best way I may be able to serve readers here in regards to this Brexit event is to simply list below links to articles from some of the various sources I cover on the monthly Crisis Watch update. This will give you a feel for how a variety of sources are reacting to the news and readers can form their own opinions from there. The only comment I would have is that this event is a clear example of why it is critical to stay alert and informed. We live in a globally interconnected financial system. There are systemic risks present in it all the time as we have thoroughly documented here from high credibility sources. It's not really fun to have to monitor this all the time, but we simply have no other choice given the world we live in today. Below are links to a variety of Brexit reactions I see out there.


Eric Sprott Audio Interview - Brexit Impact on the Gold and Silver Market

CNBC Analyst Art Cashin Interview - Brexit an "economic earthquake"

Harold James (on Project Syndicate) - The Brexit Revolt (vote of no confidence in leaders)

Jim Rickards on Gold & Brexit (taped on BNN Thursday morning during the vote) - (note: in this interview Jim laid out almost perfectly how markets would react to a Brexit vote)

Jeffrey Gundlach (on CNBC) - "we are in a bear market in confidence"

CNBC Interview - Brexit vote puts Fed in a Difficult Position

Robert Pringle Blog - Brexit Shows Need for New Rules on Globalization (note: a thank you to Robert Pringle for a link back to this blog contained in this article)

CNBC Interview - Alan Greenspan - Brexit may be just tip of the iceberg (note: I saw this interview live on CNBC - Greenspan was as somber as I have ever seen him and actually said we are in the worst shape he has ever seen during his time of public service)

Bloomberg article - Brexit Casts Shadow on World Move to Openness

CNBC - Larry Summers - Warns against "complacency" on market risk 

UK Telegraph - Ambrose Evans-Pritchard - The Sky Has not Fallen

David Marsh (OMFIF) - Interview on CNBC

The - Central Bank and IMF Response to Brexit - Christine Lagarde states directly here that Brexit could impact global financial system stability and urges "clarity in the negotiation process in the weeks and months ahead" indicating the impact of this vote will not be just a short term blip on the radar

Update 6-26-16: The BIS has issued its Annual Report alongside new speeches by BIS officials Claudio Borio and Jaime Caruana. The repeat earlier warnings from BIS that the system is too reliant on a debt based growth model and easy monetary policy. Despite the Brexit vote (which will make it even harder to pull back on easy monetary policies) they call for a move away from monetary policy to solve the structural problems and call on countries to implement reforms that would be very hard to enact politically. I will cover all this new information from BIS in a full article soon. For now, the timing couldn't be worse for BIS as Brexit makes it virtually impossible to implement what they are calling for while world markets are unstable and may require further central bank intervention and liquidity.

Keys to watch next week:

- price of gold - will it keep moving higher, stabilize, or pull back? - also, any signs that demand for delivery of actual gold (or silver) at exchanges like the Comex exceeds available metal for physical delivery as supplies are tight and this vote has cause a surge in demand (in other words, watch for a failure to deliver)

- currency exchange rate volatility - remain high or settle down?

- global stock markets - continue in a free fall or stabilize?

- any signs that one (or more) so called "too big to fail" has had a derivatives related failure (this could take days or weeks to show up) - here is one now reported (6-27-16)

- I suggest following Jim Rickards on his twitter feed in real time if possible next week (otherwise check in daily at some point in the day or evening). Willem Middelkoop as well (see example here). Either might have real time information at any time during a day on their twitter feed

- signs of central bank intervention in markets, liquidity injections, emergency meetings, etc. & public statements from IMF & BIS if any are issued (official statement issued 6-25-16) - see note above on new information just released from the BIS.

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