Over two years ago we warned that beginning in late 2015, we would start to see a major global Trend Change, where the masses would rise up & reject the political status quo. We further warned that at the core of the uprising would be the financial mismanagement & corruption of the political elites. When we made these forecasts, we did not know what the first domino to fall would be, but we did say that once that first domino falls, we would see global contagion.
On June 23rd, the people of the United Kingdom will vote on whether or not to leave the 28 member European Union (EU). In the latest poll from the Guardian earlier today, the LEAVE camp is ahead 52% to 48%.
According the the Pew Research Center’s latest survey, the British are going to the polls at a time when ‘Euroskepticism’ is on the rise across Europe, & that about two-thirds of both the British & the Greeks, along with significant minorities in other key nations, want some powers returned from Brussels to national governments. Below is the chart showing the declining view of the EU.
One of the keys to the Brexit vote is that should the Brits decide to LEAVE, it would open the floodgates with other EU countries looking to have their own referendum. For those who are not familiar with what a bureaucratic, undemocratic,& corrupt, organization the EU is, check out Brexit: The Movie.
You just know that these non-elected EU political elites must be in utter panic right now. Their empire may be on the verge of collapsing, as a LEAVE vote for the UK would send a shock-wave of reality through Europe. The reality that those in power are now realizing is that they will have to radically reinvent the EU, or actually dissolve it.
The Euro currency is also in serious trouble. The whole concept of 19 countries sharing a common currency, but not a common debt, simply does not work.
But it is not just the UK or Europe that is seeing dramatic revolt from the masses, it will spread globally. We have just spent the past four decades living in an ‘age of entitlement’, with government offering handouts every election, treating its voters like heroin addicts, just give them more stuff, & they will be happy. It didn’t matter which party, they all did the same thing. The problem was they didn’t have the money to pay for all these freebies, & now its the day of reckoning.
France has not had a balanced budget since 1974, 42 years ago! For 42 years, they have spent more money than they took in, even though they kept raising taxes almost every year.
This ‘age of entitlement’ is ending, & now we are entering the ‘age of consequences.’ After decades of spending like drunken sailors, virtually every government is broke. The only way they have survived has been by issuing more & more debt, every year.
It used to be that if you lent the government money, they paid you a nice yield each year until the bond matured. Today, we live in a world of negative yields, meaning that instead of the government paying you to lend them money, you actually have to pay them to take your money.
In Switzerland the yield on their Gov’t 10-year bond is -0.85%. That means if you were to buy 500,000 (SF) worth of Swiss gov’t bonds, you would have to pay them 4,250 (SF) per year for the privilege of giving them your money. Over the 5-year term, you would have paid a total of 21,250 (SF) to lend the government your 500,000 (SF).
We are now at the stage where the masses say ‘enough.’ Seniors & pension funds all over the globe are in serious trouble because in this zero (or even negative ) rate world, they cannot make any yield on their money. As we enter this ‘age of consequences’, the curtain gets pulled back to reveal that governments have borrowed much more money than can ever be paid back.
In the US so far, the following cities have filed for bankruptcy:
— City of Hillview, Ky.
— City of Detroit, Mich.
— City of San Bernardino, Calif.
— Town of Mammoth Lakes, Calf.
— City of Stockton, Calif.
— Jefferson County, Ala.
— City of Harrisburg, Pa.
— City of Central Falls, R.I.
— Boise County, Idaho
Over half of the US states are technically broke, but unlike cities & municipalities, they cannot declare bankruptcy. And then there are the countries. Following is a map from howmuch.net that compares the debt-to-GDP ratios of the world’s most representative economies. The size of each country on the map represents the level of debt — a larger size means a higher debt-to-GDP ratio. Also included is a color coding to illustrate the GDP growth rates of each country: red countries have negative growth rates (-5% to 0%), and green countries have very high growth rates of more than 5%.
Most countries have issued far more debt than can ever be paid off. Why should you care? Because the coming massive Trend Change is going to affect every aspect of your financial life. We are talking about a Trend Change that is going to affect your domestic currency, bonds, stocks, real estate, even food costs. You need to be ready.
The status quo is starting to crumble, we are about to embark on a new normal. Unfunded social programs either have to be cut back, or taxes raised to fund them. Many were shocked by the rise in popularity of Donald Trump & Bernie Sanders. These two & many others world wide represent a form of change. Yes Donald Trump says some pretty bizarre things, but the more different he can be from the career politician (Clinton), the more many of the masses eat it up.
The people want change. They are tired of the same old promises never delivered. Hilary Clinton represents the old guard. Sure, she would be the first woman president, but she does not represent any political change. Extreme movements all over the globe are forming. The further away from the status quo, the more popular they seem to be. This is real!
So what does this mean for investors? We are in a zero % interest rate world, & we are seeing political reform happening everywhere. We will soon see the first of many Sovereign Debt Defaults. Up to now, when investors get scared, they move their capital out of perceived risky assets, into perceived safer investments. But what happens when it is government that is seen to be the problem?
When we start to see governments default on their debt, just like we saw in Puerto Rico, investors get nervous. When we see the second, then third & fourth country default, investors will look around & ask ‘who’s next?’ When investors start to lose confidence in government’s ability to service its debt, capital will flow out of those bonds, &into the safety of blue chip equity stocks.
The mass media is perplexed that the S&P 500 has not crashed. They do not understand that the smart money has been moving their capital out of Russia, Europe, Japan, & China into the US equities, real estate, collectables, & other assets.
The S&P 500 briefly broke through its downtrend channel, then retreated on Brexit concerns. If we get a LEAVE vote, then we should see a sympathetic correction in global markets due to the uncertainty. If that were to happen, it will set up as a great buying opportunity. That’s right….while the masses are loading up on short positions, we will soon be looking for a great buying opportunity.