Time to Raise Cash and Buy Gold, Folks

 | Jun 27, 2016 | 11:09 AM EDT
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

mcd

,

f

,

ko

,

x

If you were thinking this morning that it's become ridiculously tough to trade markets these days while waking up to the confounding disaster of the Brexit vote, you'd have my wild-eyed, amazed support.

While I've been negotiating markets, and not just oil markets, for most of my adult life, I just cannot compete against self-made economic disasters that no one in their right mind could see coming.

I remember the catastrophic warnings of the proposed government shutdown in 2013, with its promised missed U.S. Treasury payments, which thankfully never came to be. Of course, the argument then was that such an outcome of disaster from missed bond premiums was nothing more than egg-headed fear-mongering, touted by economists who had managed to get everything wrong about the financial crisis anyway.

Unfortunately for Britain and the rest of us, such egg-headed warnings are being currently played out, with a drop in the pound not seen since Reagan and a drop in European and our own stock markets not seen since the aforementioned crisis of 2008. Worse is the future warnings of ever more volatility, as other European nations measure whether to follow jolly old England out the EU door, destroying six decades of work of common markets for goods and labor -- and, incidentally, keeping the peace for more than 70 years. I saw the polls and while they looked fairly even for Brexit, I trusted in Ladbrokes odds (and my own disbelief at self-immolation) against Leave at 4-1 to assure me that my portfolio was safe on Thursday -- safe enough to not even need options protection. 

Of course, my job now is to take all those decades of trading experience and try to answer the question to you: now what?

It won't surprise you to know that I am nearly as confounded in the right way to adjust portfolios as I was about the lunatic decision that the Brits made on Thursday. But two obvious schools of thought exist.

Firs, the Keep Calm and Carry On thesis. The idea is that while the U.K. has decided to leave the EU, the decision doesn't carry instantly disastrous effects.  Indeed, there is a two-year window in which to negotiate new arrangements between the U.K. and the EU, in which time it will be made clear that connections that have been built up between the two cannot be realistically broken and will instead remain essentially the same, perhaps even leading to another referendum vote where the British rethink the wisdom of Leave. In this scenario, stocks are undervalued and worth buying by the fistful today. 

Second, the severing of British ties from the EU and particularly immigration and shared labor responsibilities comes quickly, as several EU members have suggested should happen. This will further annihilate the pound and the stocks of businesses that are reliant upon open trade agreements. Clearly the financial sector suffers most, and I wouldn't be so quick to buy an apartment in London right now either. But other international corporate brands like McDonald's (MCD), Coca-Cola (KO), Ford (F) and Xerox (X) are looking at some bleak quarterly reports for the next several years.

Further, erupting nationalism set off by the British exit closes down borders in France, the Netherlands and Germany, who are the remaining strong economies keeping the rest of the EU afloat. Italian and Spanish economies resume their slide into oblivion on the back of these further retreats from the strongest EU members, all but assuring a complete European recession that might make 2008 look like only the first act of an even more frightening second act. 

Maybe most frightening of all, these trends, should they gather pace, are reminiscent of the years leading up to both World Wars that began in Europe. I'm not predicting another war, but there can be no doubt that nationalist, nativist instincts that are being acted upon in England and to a lesser degree in France, Holland and arguably here in the U.S., combined with declining stocks and economic stagnation always lead to increased civil unrest and violence. 

Wow, so where do I think this is all going? In direction one or direction two?

I have read prognostications from several people I respect and only a few of them are at all optimistic today. George Soros might be the most pessimistic, believing that a complete breakup of the European Union is now inevitable. If he's right, it's hard to argue that European economies aren't headed in the wrong direction as well. 

In the case of a coming EU breakup and further volatility in stock markets and the general economy over the rest of the year, at least, there is little for me to recommend except for cash and gold. Options strategies, now that the Brexit vote is done, are ridiculously expensive to execute and I won't do it or suggest you do it. I also think, as with most things, that the final outcome of Brexit won't be an either/or proposition and that there'll be a certain rapprochement of England to the EU. And while other referendums in other countries will certainly come up, I imagine they will more than likely (hopefully) fail, as countries like France and Holland see the bolloxed-up disaster that the British have, for misguided reasons, inflicted upon themselves. 

All that said, I'm raising some cash and increasing my gold position. 

Ladbrokes is a crummy investment option. 

Columnist Conversations

we like this chart here, it appears ready to move higher. BOUGHT BZUN OCT 35 CALL AT 3.40
Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...
View Chart »  View in New Window » View Chart » 
Hug declines in Advance Auto Parts (AAP) and Dick's Sporting Goods (DKS) made for great chances to buy stock a...

BEST IDEAS

REAL MONEY'S BEST IDEAS

News Breaks

Powered by

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.