A Post Brexit Message

July 16, 2016

So much has happened since my previous newsletter and June 24th post-Brexit message that I’m going to get straight to business.

Ignoring economic realities and financial market movements and getting caught in the adolescent drama of mainstream media’s obsession with modern politics produces only negative results, including but not limited to the following: frustration, outrage, feelings of powerlessness, and a re-direction of time and energy that is more productively deployed in matters where we can make a difference for those we serve professionally.

Brexit was just the start of the Age of Consequences: a global economic daisy chain overshadowed by a shrill political farce. This is the reality of our current public discourse, at least in the mainstream media: Crisis du Jour + Hillary & Donald + Entertainment “News” = Squirrel!

Despite the firestorm raging in financial media, our managers did an excellent job both before and after the surprise Brexit result, pulling all-nighters in front of their screens, which allowed them to mitigate immediate volatility and then take advantage of buying opportunities in the next few days.

Their asset allocation decisions long before the Brexit vote were prudent and well thought-out, turning this into essentially a non-event for client portfolios. Our client portfolios barely dropped (down 1.5 to 1.7% max), and had already recovered within a couple days of the June 27th lows.

Martin Armstrong’s Socrates (TM) system has already proven be very valuable to our managers. Having the key support levels clearly laid out by Socrates(TM) has added considerable depth and confidence in respect of understanding the difference between short-term shocks that can be comfortably tolerated, and the beginning of a genuine crisis which would trigger major defensive actions in portfolios before markets do a real nose-dive. This helps our managers “keep their eyes on the ball” while the markets climb the proverbial wall of worry.

Politics has long been one of my personal passions, so I’m not immune to this distraction. I keep reminding myself that the melodramatic drivel that appears in most of the mainstream media is a deliberately shallow, deceptive, biased and conflict-driven farce. In the U.S., Hillary’s campaign is generating huge advertising revenue for the big media companies – is it any surprise they love her?

The inescapable truth is that Economics drives Politics, not the other way around, but our shrill political farce tries to make us think otherwise. If you hear it often enough from the mainstream, you can start to believe their deception. Such is the nature of brainwashing, or “conditioning” for the faint of heart. This criticism applies equally to popular memes in mainstream financial journalism.

Another formula may be helpful here: Unsustainable Economic Policies + Time + Populism = Clueless Establishment Figures Barking up the Wrong Tree. Yes, my inside voice is raging with expletives!

The pre- and post-Brexit commentary was pathetically one-sided in favour of the Remain campaign, and totally ignored the real issues that drove the Leave voters’ motivations: Sovereignty, ending the financial abuse that came with their EU membership, Sovereignty, Immigration, and yes, Sovereignty. That’s why Nigel Farage triumphantly pronounced the decision as a vote for UK independence.

The unfolding crisis in Italian banks will likely spread throughout Europe; Deutsche Bank and Credit Suisse are extremely vulnerable, along with countless smaller institutions whose names haven’t yet hit our airwaves. Despite the repeated attribution of anything negative to the Brexit vote, these events are the result of flawed economic modelling within these institutions and Europe as a whole. Brexit is a convenient excuse and distraction from the fact that the EU is an unsustainable socialist experiment, and it’s simply reaching the end of its natural life cycle. While we can ignore economics, economics won’t ignore us.

I would be remiss if I didn’t mention the fact that immigration policies will also be an exceptionally important issue in the campaigns in the U.S., as well as in Germany and France in the spring of 2017. This is a thorny issue, a veritable minefield for anyone willing to discuss the topic.

France is experiencing second generation Islamization, as described in this article by a French citizen whose Jewish family is increasingly concerned. Today, Merkel finally admitted that letting in so many “refugees” so quickly was perhaps not ideal, as ISIS-directed terrorists came in with the legitimate Syrian refugees and the many other economic migrants from the rest of the Middle East, North Africa and even Pakistan.

The epidemic of sexual assaults by the migrant population (mostly, not exclusively) in Europe has been discussed on news sites that actually care about the truth for at least the last 6 months, and I’m wondering how long it will take for the mainstream media to reveal this uncomfortable reality. If they do, will they actually understand or admit they played a role by supporting the unconditional acceptance of economic migrants from countries other than war-torn Syria? Fat chance of that happening.

In light of the recent shootings, today Trump made a clear pivot to position himself as the “law and order” candidate. This is politically smart. It’s a popular stance with many voters, and will eventually circle back to immigration after the serious civil unrest throughout the US rises during the hot summer months and hopefully falls with the temperatures before their elections.

At risk of stating the obvious, bashing Donald Trump is the trendy thing to do in mainstream media (which now includes Facebook). The more one buys into bashing the Donald, the more “progressive” we perceive ourselves to be. The same can be said of those who ignore the many ethical shortcomings of Hillary Clinton, since supporting her is trendy and progressive.

Lest we Canadians become too smug and criticise the (lack of) depth of the U.S. Presidential candidates, I will remind readers of the pretty drama teacher in 24 Sussex Drive. All form, and no substance. Nice hair, though.

As usual, the talking heads are completely missing what’s really going on. They don’t understand Economics, and only really care about generating more sensationalist news so that viewers tune in. Admittedly, Trump’s “Ready, FIRE, Aim!” methodology gives them endless sound bites, and nonsense to talk about, but they are once again completely missing the point…while Trump spends almost nothing on advertising.

The rise of Donald Trump would be impossible were it not for the profound anger toward and mistrust of career politicians whose policies have been designed to economically benefit themselves, at the expense of the population. When Economic results don’t match the campaign promises, dissension builds…then it wanes until the next flare-up. When enough people from enough walks of life feel lied to, financially abused, and violated (in countless ways) for long enough, “Something’s gotta give,” as they say.

Now to the Democratic side of this tragedy, featuring the ethically-challenged, “morally flexible” Hillary Clinton. She’s merely a different brand of narcissist than Donald Trump. In contrast to “The Donald,” every word she speaks is “managed and calculating,” but I guess that depends on what your definition of “managed and calculating” is. Thanks Bill.

Once Obama started campaigning for her, you knew the FBI-DOJ fix had to be in. Given the overwhelming evidence and circumstances in favour of indicting or charging Mrs. Clinton, FBI Director Comey may have actually helped the Trump campaign. By deciding not to recommend to the DOJ that they charge Hillary for her handling of classified emails, the double standard for Hillary proves the system is rigged in her favour. Now the voters get to decide who wins the Whitehouse, rather than the FBI, and Trump’s campaign will not let this one go.

I cannot help but wonder if the FBI is (not-so-secretly) hoping that Wiki Leaks and/or Vladimir Putin release the other 30,000+ emails that Mrs. Clinton deemed to be “personal” but were hacked and copied multiple times from her “secure server.” The FBI would then be literally forced to indict and charge her.

Wouldn’t it be ironic if Julian Assange and the Russians literally held the Trump Card in the U.S. elections? It’s not “classified information” that Assange and Putin both deeply hate Hillary Clinton, and they would undoubtedly take great pleasure in releasing these documents close enough to the November 8th election that the Democrats can’t replace Hillary on the ballot. Such an event could cause some market volatility, especially if Hillary is leading the polls when this document release happens.

I personally don’t respect or like either candidate, and it’s becoming apparent that American voters are about to make a very difficult selection. The choice they face is both “the lesser of two evils” and “the evil of two lessers.” One lyrical rapper described the election as forcing one to “choose which gun will shoot you.” My take is that the winner will be the candidate that voters fear and hate less.

As we move forward into this political drama, we’ll keep our eyes on the ball.

Patience, discipline and compassion are accretive to your wealth, health and happiness – so focus on these.

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