Below is a collection of interesting links and insights from today's news with analysis filtered through our macro lens. This installment discusses the $2 trillion+ stock carnage post Brexit, the "risky trinity" warnings from the Bank for International Settlements, an analysis of Brexit voter demographics, and the latest from global central planners.
market Carnage (continues)
This past Friday's post-Brexit selloff was ... drumroll please ... the worst day ever for global equities. Literally. According to Reuters, "The $2.08 trillion wiped off global equity markets on Friday after Britain voted to leave the European Union was the biggest daily loss ever, trumping the Lehman Brothers bankruptcy during the 2008 financial crisis and the Black Monday stock market crash of 1987, according to Standard & Poor's Dow Jones Indices." Today's market action isn't exactly inspiring confidence with global markets getting hit hard across the board.
Bottom line: So much for the whole "there is no alternative" to stocks narrative. We've been suggesting a steady diet of Long Bonds (TLT), Utilities (XLU) and Gold (GLD) to our subscribers.
Central Bank Watchdog Warnings
On Sunday, the Bank for International Settlements (BIS) warned of a "risky trinity" of conditions. (And no... the central bank watchdog wasn't talking about Brexit.) In its annual report, the BIS warns of: "Productivity growth that is unusually low, global debt levels that are historically high, and room for policy manoeuvre that is remarkably narrow. A key sign of these discomforting conditions is the persistence of exceptionally low interest rates, which have actually fallen further since last year."
Bottom line: To which we say, welcome aboard! As our subscribers are well aware, we've been warning about global #GrowthSlowing for quite some time now. Our cartoonist Bob Rich has been all over this.
Brexit Demographics Deep Dive
Voting data crunched by the Financial Times reveals that "Remain" votes came from areas with a high concentration of "degree-educated people" who had higher incomes and were generally older. Another interesting correlation is that "Leave" voters generally hailed from regions most economically dependent on the European Union.
The chart below shows "share of Leave vote" to "percentage of region's GDP exported to the EU." This suggests that for a large contingent of British voters the European Union experiment had been largely underwhelming.
Central Planning Shenanigans
Global central banks stand ready to cooperate to stem post-Brexit bleeding, according to the Bank for International Settlements. "Central banks have acted swiftly in the past, they stand ready to act again, and they have the tools," BIS head Jaime Caruana said in the text of a speech to be delivered on Sunday.
The Bank of England has offered to provide over 250 billion pounds in addition to "substantial" access to foreign currency to relieve pressured markets, BoE head Mark Carney said. Meanwhile, "The Federal Reserve is prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy."
And via Bloomberg, "China weakened its currency fixing by the most since last August as global market turmoil spurred by Britain’s vote to leave the European Union sent the dollar surging. The People’s Bank of China set the reference rate 0.9 percent weaker at 6.6375 a dollar."
Bottom line: One of our top themes remains a loss of faith in the power of central planners. #BeliefSystem breakdown. It's been (and remains) a gigantic market and economic risk.
...More Central Bank Nonsense? Yup.
Today, following an emergency meeting between Japanese government and Bank of Japan officials, "Prime Minister Shinzo Abe instructed the Finance Ministry and the Bank of Japan to ensure the stability of financial markets and take steps if necessary," according to The Japan Times. Unnamed sources say the "government is ready to provide the economy fiscal support, with an eye on expanding planned stimulus steps to total more than ¥10 trillion."
Bottom line: See takeaway above for our view of the breakdown in faith of central planners.