Weekend Reading: “Bre-Lief” And The Troubles Below

Brelief

Quite a week.

Last week, the markets rallied in anticipation Britain would “Remain” in the European Union which reversed the sell-off from the previous week. Despite a variety of polls and betting sites showing rising odds of Britain remaining in the EU, the “inconceivable” occurred last Thursday proving everyone wrong.

But this week, the markets proved everyone “wrong” again. I suggested on Tuesday that Central Banks would come to the rescue once again, that happened yesterday as both the BOE and ECB made announcements hinting at more QE this summer. To wit:

  • BOE: SOME MONETARY POLICY EASING LIKELY OVER SUMMER
  • BOE: MPC WILL DISCUSS FURTHER POLICY INSTRUMENTS IN AUG
  • ECB: TO WEIGH LOOSER QE RULES AS BREXIT DEPLETES ASSET POOL
  • ECB: OPTIONS TO INCLUDE MOVING AWAY FROM QE CAPITAL KEY
  • ECB: CONCERNED ABOUT SHRINKING POOL OF ELIGIBLE DEBT

For those predicting financial market chaos and mayhem, Central Banks has successfully juiced asset prices erasing the majority of the previous losses.

It is for that reason I stated previously:

“There are times in portfolio management where ‘doing nothing’ is better than ‘doing something.’ This is one of those times.”

Any action taken over the last two weeks has likely turned out to be wrong. The problem for investors remains that markets have made “no progress” over the last 13-months. While volatility has increased, returns on assets remain muted which continues to frustrates individuals.

Fundamentally and economically there is little cheer about and on a longer-term basis, as shown below, the markets remain in what appears to be a broadening market topping process.

SP500-MarketUpdate-063016-2

The question remains whether Central Banks can continue to keep asset prices aloft while the economy and markets go through a recessionary cycle? Historically, that has never been the case. But then again, we have never had the level of Central Bank interventions currently being witnessed today.

Here is your reading list for the weekend.

“It’s the height of your responsibility to not allow the EU to disintegrate without utilizing all its resources. Throughout history governments have issued bonds in response to national emergencies, When should the AAA credit of the EU be put to use if not at the moment when the European Union is in mortal danger” – George Soros

BREXIT – BRELIEF

OTHER THINGS I’M READING

“There is nothing riskier than the widespread perception that there is no risk.”  – Howard Marks

Questions, comments, suggestions – please email me.

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Lance Roberts

Lance Roberts is a Chief Portfolio Strategist/Economist for Clarity Financial. He is also the host of “The Lance Roberts Show” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report”. Follow Lance on Facebook, Twitter, and Linked-In