Anarchy in the UK

Hard as it is to believe, it was nearly 40 years ago that the Sex Pistols released Anarchy in the UK.   Despite the ensuing decades of  the Winter of Discontent, Thatcherism, New Labour, and foreigners in charge of the England football, rugby, and Bank teams, the sentiment has never been as apt as it is today.

Indeed, as one wag on Twitter noted, a list of the prominent and the powerful Britons who've recently stood down from their positions recalls another musical act that burst onto the scene 20 years ago:

Chris Evans:  Ginger
David Cameron: Posh
Roy Hodgson:  Sporty
Boris Johnson: Baby
Nigel Farage: Scary

A more serious development, of course, is Standard Life's decision to gate their GBP 2.9 billion UK commercial property fund.   This in turn has recalled the dark days on 2007, when the price collapse and gating of money market funds was the canary in the coal mine that illustrated the severity of what was to become the financial crisis.

Now obviously, these are not the same things.  When considering the liquidity spectrum, money market instruments and commercial property are about as far apart as you can get, so a gating of the latter connotes far less danger than of the former.  That being said, this is another sign of real economic damage being inflicted by the Brexit fiasco (are we allowed to call it that yet, given that "uncomfortable limbo" was not among the referendum choices, but that's what we've currently got?)  The Standard Life fund, which had performed like a rock star since the crisis, has seen a significant markdown in its price in the aftermath of the vote- much like its major competitors.   This development, a rather unwelcome change from the fairly steady appreciation of the past seven years, has prompted a wave of redemption requests- which the fund's 15% position in liquid assets is unable to meet.

That investors are unable to immediately access their money, and that SLI will have to sell some property to raise it for them, is an example of the real economic costs resulting from the vote.  One episode is an anecdote; two may be coincidence; however, if you collect enough examples, what you have is soon called "data".  On the upside, for the time being it is only the UK that has shot itself in the foot, though the EU is standing there with a loaded pistol cocked and firmly aimed at Italian banks.  Of course, Italy has its own referendum approaching in October; while the reform of the Senate may not seem as existentially significant as membership of the EU, it would be a crushing blow for Renzi's government to lose, throwing petrol on the fire of what will undoubtedly be a turbulent political environment this autumn.

It is for this reason, perhaps, that there is a growing demand for assets such as precious metals and linked instruments.   With real interest rates tumbling and political uncertainty high, this is perhaps a perfect storm for this complex.   Macro Man has of course been following GDX for some time; he retains the strategic position he purchased earlier in the year, and has now seen the price more than double.   Lately silver has also gotten into the game; after fulfilling its downside head and shoulders target a few weeks ago virtually to the penny, it has exploded to the upside (while still lagging the GDX move.)

Although it's rarely a good idea to buy these instruments right after an explosive upside move, that resistances are being breached with relative ease is a strong signal that the trend is real.  Given the trends that appear most likely in both the political and monetary spheres, it looks as if anarchy in the UK and elsewhere could be the best possible outcome for the metals.