Yeah, I didn't see that coming. I should have though. We all should have. So hold on to your 401k and get the out gold from under your bed. This could be a wild ride. But what does it all mean?
The biggest consequence of a Brexit vote is risk, especially bond risk and currency risk. If the UK and leave the EU then Germany can. In fact, anyone can. If the big players in the EU leave than what is to hold it together and what is a Euro worth? I feel sorry for anyone holding Euros. I know Soros isn't, and he is a evil SOB that hits hard. I wouldn't want to trade against him. He doesn't speculate, he makes things happen.
Also, if the big guys leave the EU, why would they still bail out weak members like Greece, Italy, Spain, etc? These guys are probably hanging on only because they are members of the EU and therefore the big players have an interest in them not collapsing. However, if they leave why would they care?
Bond risk is reflected in higher interest rates. As bond rates increase, values of current bonds fall. The owners of about $10T in bonds with negative rates are counting on rates to continue to go down. If rates start to increase their bonds will become worthless very quickly. Most bond holders could just hold the bond till it matures. However, with a negative interest rate that is a losing proposition. These guys lose either way. If they panic it could cause the bond market to crash.
Is the sky going to fall? No. The U.S. still have a flight to security and I imagine that our short term pain will be minimal compared to Europe. Our stock market will probably suffer, Gold will go up, and our currency will get stronger. Rates? Who knows? All the money that MIGHT leave EU bonds has to go somewhere and generally it is stocks or cash. However, there is always US bonds. It is possible that demand for U.S. bonds could increase. Still, the biggest threat is that of a continuously stronger dollar which makes U.S. products more expensive to other countries. But junk from China gets even cheaper for us... so its a double edge sword.
So hold your breath and jump, or stick your arms in the air and scream. Either way, it will be crazy. Or not.
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The biggest consequence of a Brexit vote is risk, especially bond risk and currency risk. If the UK and leave the EU then Germany can. In fact, anyone can. If the big players in the EU leave than what is to hold it together and what is a Euro worth? I feel sorry for anyone holding Euros. I know Soros isn't, and he is a evil SOB that hits hard. I wouldn't want to trade against him. He doesn't speculate, he makes things happen.
Also, if the big guys leave the EU, why would they still bail out weak members like Greece, Italy, Spain, etc? These guys are probably hanging on only because they are members of the EU and therefore the big players have an interest in them not collapsing. However, if they leave why would they care?
Bond risk is reflected in higher interest rates. As bond rates increase, values of current bonds fall. The owners of about $10T in bonds with negative rates are counting on rates to continue to go down. If rates start to increase their bonds will become worthless very quickly. Most bond holders could just hold the bond till it matures. However, with a negative interest rate that is a losing proposition. These guys lose either way. If they panic it could cause the bond market to crash.
Is the sky going to fall? No. The U.S. still have a flight to security and I imagine that our short term pain will be minimal compared to Europe. Our stock market will probably suffer, Gold will go up, and our currency will get stronger. Rates? Who knows? All the money that MIGHT leave EU bonds has to go somewhere and generally it is stocks or cash. However, there is always US bonds. It is possible that demand for U.S. bonds could increase. Still, the biggest threat is that of a continuously stronger dollar which makes U.S. products more expensive to other countries. But junk from China gets even cheaper for us... so its a double edge sword.
So hold your breath and jump, or stick your arms in the air and scream. Either way, it will be crazy. Or not.
Subscribe to Youtube! Become a Fan! Follow Me on Twitter
