A Brexit thought experiment

While many had hoped that the sorry scenes of a few days ago were relics of the distant past, the ugly images that flickered across screens worldwide were a reminder that you can never be too vigilant in trying to spot and neutralize troublemakers.

But enough about the worst day for the SPX in nearly a month.

While it would be nice to think that another mass shooting in the United States might finally catalyze some common sense thinking on how to address the fetishization of violence in some quarters of American society, the reality is that if the murder of 20 small schoolchildren at Sandy Hook didn't do the trick, then nothing probably will.

Meanwhile, the ugly scenes at the Euros, notably involving England and Russia fans, open up the opportunity for an interesting thought experiment.  If both sets of fans were to be involved in further violent episodes (which hardly stretches credulity, does it?) and if each term were summarily expelled from the tournament per UEFA's weekend dictum, what would that do for the Brexit vote?

The knee-jerk reaction would likely be a lurch towards "Leave"; after all, if they don't want us, we'll take our toys and go home, innit.  Of course, UEFA has nothing to do with the European Union, as the presence of England's antagonists as well as countries like Switzerland and Turkey can attest.

Moreover, the cost of a "Leave" vote may actually be higher in a post-Euros expulsion world.  Will EU countries really give travel visas to UK residents carte blanche when they've caused this type of trouble over the years?  Obviously the vast, vast majority of travelers are perfectly innocuous...but the same holds true of airline passengers and we still have to waste time queuing in airport security lines.

Perhaps they will, but it doesn't exactly fit the narrative peddled in some quarters that "we'll have all of our privileges but not of our obligations" by Brexiting.   Privileges, after all, have to be earned...and having a punch-up on somebody else's front step isn't exactly the best way of going about doing so.

Stay tuned later this week for an analysis of what's currently priced into the market for the referendum.

Elsewhere, the price action in precious metals have been stunning if somewhat unsurprising given the vehemence of the fixed income rally.  When Macro Man looked at silver a month ago, he noted that it was perilously close to breaking a little H&S pattern than would target below $16 oz.   A week later, the neckline duly broke.

Rarely will you see a pattern fill its price objective so neatly as silver did, which reached the level nearly to the penny and has sine bounced with renewed vigor.

While the dollar's fortunes are looking slightly more mixed these days (weaken against the yen, a little stronger against the commodity complex?) the ongoing collapse in global "risk free" real rates of return is a power argument in favor of the metals complex.

It seems nonsensical that Bunds could trade at a negative yield, but here we are just a tap-in away.   While it does look tempting to pile onto the metals steam train, Macro Man just cannot convince himself to do so quite yet.   GDX for, example, as put in a couple of notable gaps recently that are just begging to be closed.

If the Fed ever came out and grabbed the monetary steering wheel rather than filing meekly to the back of the bus, perhaps those gaps would close in a hurry.