The rise of tyranny

From Andrew Sullivan in NYMag:

…..In Eric Hoffer’s classic 1951 tract, The True Believer, he sketches the dynamics of a genuine mass movement. He was thinking of the upheavals in Europe in the first half of the century, but the book remains sobering, especially now. Hoffer’s core insight was to locate the source of all truly mass movements in a collective sense of acute frustration. Not despair, or revolt, or resignation — but frustration simmering with rage. Mass movements, he notes (as did Tocqueville centuries before him), rarely arise when oppression or misery is at its worst (say, 2009); they tend to appear when the worst is behind us but the future seems not so much better (say, 2016). It is when a recovery finally gathers speed and some improvement is tangible but not yet widespread that the anger begins to rise. After the suffering of recession or unemployment, and despite hard work with stagnant or dwindling pay, the future stretches ahead with relief just out of reach. When those who helped create the last recession face no consequences but renewed fabulous wealth, the anger reaches a crescendo…..

Sullivan argues that Donald Trump is riding this populist backlash to the White House. I believe that the same populist forces are behind the BREXIT vote. This is a major threat to stability of the Western world over the next decade.

Source: America Has Never Been So Ripe for Tyranny — NYMag

WWI: The biggest mistake in modern history | Niall Ferguson

Niall Ferguson argues that Britain’s decision to intervene in 1914 turned the conflict between Germany and Russia from a continental war into a global war.

https://youtu.be/bT81WwCix4M

Ferguson argues that the consequences of that decision by Britain in 1914 lasted 75 years, until collapse of the Soviet Union in 1989. With the benefit of hindsight, and the resurgence of Russia, I would say we still live with those consequences today.

Gold surges as BREXIT looms

It looks like the LEAVE vote has it, with a lead of more than 900,000 so far.

BREXIT

Gold bugs seem to think so, with the spot price blasting through resistance at $1300/ounce. Retracement that respects the new support level would confirm a target of $1550*.

Gold

* Target calculation: 1300 + ( 1300 – 1050 ) = 1550

Gold: Should I BREXIT?

Odds of a BREXIT are drifting at the bookmakers, with REMAIN a firm 1 to 4 favorite. Fears of a BREXIT have been driving demand for gold and a REMAIN vote is likely to spur a sell-off.

Gold

* Target calculation: 1300 + ( 1300 – 1050 ) = 1550

Breakout above resistance at $1300/ounce turned into a bull trap with a sharp retreat to support at $1250/$1260. A REMAIN vote on June 23rd would test support at $1250 and possibly $1200. But the up-trend remains intact if support at $1200 holds.

Political uncertainty is unlikely to fade before the November US election. And economic uncertainty, fueled by Chinese instability, is likely to last a lot longer.

USDCNY

Capital outflows from China continue, with USDCNY running into resistance at 6.60. This is a sign that PBOC sale of foreign reserves has resumed, weakening the Dollar and boosting demand for Gold.

Gold’s up-trend is likely to continue. And breakout above $1300 would offer a long-term target of $1550/ounce*.

Disclosure: Our Australian managed portfolios are invested in gold stocks.

Odds Are U.K. Will Stay In E.U. | NPR

Peter Kenyon at NPR:

Britain’s bookies say the smart money is on Remain.

“At the moment, Remain is the odds-on favorite at 1 to 4, so that equates to about a 76 percent chance of the U.K. voting to remain in the EU,” says Jessica Bridge, spokeswoman for Ladbrokes, one of the U.K.’s larger betting firms.

The Leave side, meanwhile, “is drifting like a barge,” she says, with the odds 3 to 1 against.

Source: Britain’s Bookies: Odds Are U.K. Will Stay In E.U. : Parallels : NPR

Hope isn’t a strategy

Cautious optimism has evaporated after poor recent polls favoring a BREXIT. I hope that sanity prevails but, as the saying goes: “Hope isn’t a strategy”.

Better to have a Plan A and a Plan B to cope with the two alternatives. But if enough investors decide their money is safer in the bank, then expectations of a fall are likely to become a self-fulfilling prophecy.

The S&P 500 does not appear unduly alarmed but a sharp fall on 13-week Money Flow warns of selling pressure. Reversal below 2000 would warn of another test of primary support (1820 to 1870).

S&P 500 Index

Dow Jones Industrial Average shows a similar picture. Breach of medium-term support at 17400 to 17500 would warn of another test of primary support at 15500 to 16000.

Dow Jones Industrial Average

A CBOE Volatility Index (VIX) spiked to 20, indicating increased market risk. Long-term measures remain unaffected.

S&P 500 VIX

Europe

Germany’s DAX retreated below medium-term support, warning of another test of primary support. 13-Week Money Flow below zero suggests a primary down-trend.

DAX

The Footsie broke support at 6000 warning of a test of 5500. Reversal of Money Flow below zero would suggest a primary down-trend.

FTSE 100

* Target calculation: 6400 + ( 6400 – 6000 ) = 6800

Asia

The Shanghai Composite Index continues to range between 2700 and 3100.

Shanghai Composite Index

Japan’s Nikkei 225 Index broke support at 16000 and its lower trend channel, warning of another decline.

Nikkei 225 Index

* Target calculation: 15000 – ( 18000 – 15000 ) = 12000

India’s Sensex remains bullish, with a short retracement below 27000. Bearish divergence on 13-week Money Flow would end if the descending trendline is penetrated.

SENSEX

Australia

The ASX 200 broke medium-term support at 5200, warning of another test of primary support at 4750. Expect support at the former level of 4900 to 5000 but it is questionable whether this will hold. Combination of a seasonal sell-off and BREXIT fears are going to test buyers’ commitment.

ASX 200

The Banks Index fell sharply and breach of support at 7200 would offer a target of 6400*.

ASX 300 Banks

* Target calculation: 7200 – ( 8000 – 7200 ) = 6400

Health Care is experiencing a strong sell-off, led by CSL. This is a good long-term stock but exposure to the UK/Europe has spooked the market.

ASX 200 Health Care

Why BREXIT matters

From The Guardian, June 14th:

Support for leaving the EU is strengthening, with phone and online surveys reporting a six-point lead, according to a pair of Guardian/ICM polls.

Leave now enjoys a 53%-47% advantage once “don’t knows” are excluded, according to research conducted over the weekend, compared with a 52%-48% split reported by ICM a fortnight ago.

….Prof John Curtice of Strathclyde University, who analyses available referendum polling data on his website whatukthinks.org, noted that after the ICM data, the running average “poll of polls” would stand at 52% for leave and 48% for remain, the first time leave has been in such a strong position.

If the UK votes to LEAVE, we can expect:

  • A sell-off of UK equities. GDP is expected to contract between 1% and 2%. A Footsie breach of support at 6000 would signal a test of 5500, while breach of 5500 would offer a target of 5000 (5500 – [ 6000 – 5500 ]).

FTSE 100

  • UK housing prices fall.
  • A sharp sell-off in UK banks in response to falling GDP, equities and housing — threatening contagion in financial markets.
  • BOE rate cuts to support the UK economy.
  • A sharp fall in the Pound due to uncertainty, lower interest rates and lower capital inflows.

GBPUSD

  • The Euro falls in sympathy, as confidence in the EU dwindles.
  • The US Dollar strengthens, causing the Fed to back off on further interest rate rises.
  • Volatility surges across all markets.
  • Gold spikes upward.

Hat tip to The Coppo Report