Following Brexit, Central Bank Desperation Never More Evident…
By: Michael Ballanger
GoldSeek.com
Friday, 1 July 2016
To truly appreciate market crashes, you must have an ample serving of grey hair.
Over the weekend, I must have received three dozen “Emergency Email Alert” notifications by newsletter services and financial intermediaries that got absolutely obliterated Friday morning and were expecting more of the same on Monday, which they got in spades. This new generation of “wealth advisors” has, unfortunately, been living off the largess of Central Bank guarantees and the winks and nudges of the “Finance Ministers” and “Treasury Secretaries” and “Chancellors of the Exchequer,” where they make investment decisions based not upon analyses of balance sheets or income statements but upon the collective wisdom of Champagne Socialists. I have been writing about this for about thirty-five years and while it has not yet manifested itself in the advance of the prices of precious metals to levels that would correspond to the level of coinciding currency debasement, especially in the United States and Europe, it is going to be the “Talk of the Town” here in 2016.
Yesterday I heard two commentators on CNBC ask two of the stupidest questions in history. The first one was when Bob Pisani asked, “Why is the VIX (Volatility Index) down over 2 points with the S&P off 40?” The answer, which was even more ludicrous than the question, implied that traders had purchased volatility prior to the Brexit vote, and once it spiked after the decision, they were selling “vol,” which was telling you that the selloff was going to be short-lived.
No, Bob, that is incorrect. The only “traders” selling “vol” yesterday were those at 33 Liberty St. in New York (home of the NY Fed), after instructions were taken from the “Working Group in Capital Markets” (covert arm of the U.S. Treasury).
They weren’t “lightening positions” taken prior to Brexit, either—they were bludgeoning the VIX futures in order to drive the algo-bots into the “long S&P futures” trade, so naturally, since the market rallied off the lows in late trading in response to the sagging VIX, a rather obvious wink/nudge was hand-delivered to the masses. Net effect? A 20-point S&P rally arrives, and another 35-point rally follows.
The second “dumb as a bag of hammers” moment was when Kelly Evans questioned a fund manager about his ownership of gold within his family of funds: “You are a value manager, so how can you like gold in here when it offers no cash flow and no yield?”
Well, Kelly, why don’t you ask that question to those British investors who flipped their British pounds into gold last Wednesday? They staved off a 12.5% currency haircut versus the Yankee dollar and they got an 8.5% lift in gold. Ask that question to a depositor in the Cyprus banks a few years back when they got sideswiped by the advent of the “Bail-In.” It is called “counter-party risk”—where the guy on the other side of the trade is unable to settle the transaction—and you can bet there has been a lot of that being talked about across the pond these days. So THAT, Kelly, is a tad more important than cash flow or yield—it is called capital preservation. (See chart above.)
I am giving the markets a few days to bounce but I really do think that Europe is unraveling and that the ability of the Central Banks to inject liquidity (“manipulate”) is rapidly coming to a close. I therefore will attempt to buy back the UVXY July $10 calls at $1.45, and since these were sold for double what I paid, the new adjusted cost on the 60% position is now $0.725. So when Bob Pisani tells us that the declining VIX is a sure sign that the selloff in stocks is going to be “short-lived,” ask yourself what he was telling the viewers back from May 31–June 10, when the VIX traded under 13; it hit 25 on Friday.
The Rest…HERE
