Volatile Markets and Brexit

The financial markets have been making some moves lately.  Gold briefly went over the $1,300 mark.  The 10-year yield was close to 1.5% before going back up a little.

Stocks have been up and down, but mostly trading within a fairly narrow range.  They were up on Monday.

The foreign bond market has been interesting to watch.  The German 10-year yield briefly went negative last week.  The Japanese 10-year yield fell to about negative 0.2%.  This yield has been negative for a while, but this was the lowest (the highest negative) it had reached.

Some are speculating this has to do with the British vote on June 23 on whether to leave the European Union.  Known as the Brexit referendum, the polls were recently showing that voters had shifted opinion to the “leave” camp.

The polls have reversed a bit in the last few days, which may have contributed to the rising stock prices on Monday.

My prediction is that the Brexit leave vote is going to fail and that the United Kingdom will remain a part of the European Union for now.  I hope I am wrong, but I think the establishment is going to squeak this one out.

Decentralization is usually good for liberty.  I know that some in the “stay” camp are arguing that it would hurt free trade, but that is rather ridiculous.  There is no reason, other than maybe the establishment intentionally blocking it, that Britain cannot trade freely with European Union countries, even if it is not a part of it.

You don’t need political unions or managed trade agreements for free trade.  You just need a government that does not put restrictions on the trade.  The term “free” means that it is free from government interference.

No matter what happens with the vote, Western Europe is in trouble.  Greece is still a mess.  Maybe the British people are tired of bailing out Greece.  A lot of the southern countries in Western Europe are a mess.

This state of affairs with massive monetary inflation, negative interest rates, and growing debt is not normal.  It isn’t normal regardless of whether it is in Japan, Western Europe, or anywhere else.  It is also unsustainable.

I think it is a matter of time until the European Union breaks up.  There are too many cultural differences and competing interests.  The people of the more solvent countries are going to get tired of bailing out the more irresponsible ones.

If the Brexit vote results in leaving, then there will probably be some extra short-term volatility in the markets.  It will settle down eventually.  If it doesn’t, it isn’t because of Brexit, although some might try to use that as an excuse.

If you have an investment plan, don’t let the Brexit vote impact your decision making over the short term, unless you are a day trader.

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