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Should We Be Worried?

Gas prices are low, the economy finally seems ready to take off, and the international market appears relatively stable, at least for the moment. The Fed is poised to raise interest rates. Existing red flags such as Brexit, the Chinese economy, ongoing Middle Eastern instability, and the U.S. election cycle just don’t seem that threatening. So what are the professional worriers (pardon me, the “bears”) worried about the most these days? That’s right, the lack of worry. In fact, many are starting to use the exact same word to describe the current financial climate: complacent. Everyone Has Started Using the Same Word
What’s wrong with this? Not worrying enough makes us more vulnerable to the next economic catastrophe, of course. We were complacent in 2006, 1999, and especially so during the 1920’s. But worrying too much isn’t productive either. It paralyzes investment and risk taking, which form the basis of capitalism. Worry about the lack of worrying is spreading. The man who accurately forecast the 2007 economic crash, Kyle Bass, has also predicted one in Japan – every year for the last five years. One prominent equities figure warns that “investors should make sure their seat belts are fastened.” The head of Franklin Templeton Solutions, Rick Frisbie, demonstrates how this concept is actually institutionalized with the saying, “when the CBOE Volatility Index is low, it’s time to go.”
So where’s the sweet spot between too little versus too much worry? That’s what our economy is designed to find. That’s why incentives and disincentives exist for both bulls and bears. When both groups are pursuing their goals according to their beliefs, a natural balance is achieved. Adam Smith’s theories are born out. Life is good. When one group gains too much ground on the other, imbalance occurs. The economy suffers either stagnation or over-inflation, or worse yet, stagflation. Life is not good.
Are we worrying enough about the economy right now? Or too much? The only thing I know for sure is, I’m not worried about it. And please don’t worry about my lack of worry.

Brexit in the Financial Sense

The majority of the controversy surrounding Brexit seems to be winding down in the major sense as both sides have been moving to accept the reality of the situation. In an effort to move forward, many people are wondering what Brexit might mean financially as it has left many ambiguities up in the air.

First of all, Brexit actually has to be legally set forth. The problem with this is that the legal framework set up by the Lisbon Treaty is not specific in how the UK should go about creating its exit. This problem has lead to a standstill in negotiations, as it is not clear if the Prime Minister or Parliament should rule on Brexit. Due to this fact, there is a lack of financial security as Brexit remains to be set in stone. The longer it is delayed the more insecure the situation becomes as people try to predict the outcome.

A major problem with Brexit is within the banking sector, which has been highly integrated into the EU common market. When the UK leaves the EU, these banks will have to move to meet new legal standards to continue trading within member states. This means that the fastest banks to meet these standards will end up ahead of those who cannot make the cut, ultimately leaving some behind.

The banking problem highlights a larger issue in which the EU will have to carve out new trade deals in general within a new independent system.

London Wants to Solve the E.U. Problems Quickly

The most powerful players in London’s financial industry are calling for a quick resolution to the issues at hand in order to solve problems that remain. Doing so will allow the global economy and stock markets in Europe specifically to begin to figure out what the new normal is, invest in what looks like will be dominant down the line, and figure out how to do business with the rest of Europe and the world even though Britain’s foreign policy and therefor economic policy has come to be much more isolationist than anyone would have hoped for.

This is important, and it makes sense that people who make their living on the economy would want to see uncertainty in the economy be dealt with and handled as soon as possible. For London to be able to grow apart from the E.U. while still wanting to be a financial hub for all of Europe, serious time will need to be spent on Brexit negotiations that focus on the future relationship of London with the E.U. if that ends up being different than what the position of Britain as a whole is.

Uncertainty is hardly ever a good thing, and it’s certainly not helpful when you’re trying to develop industries that support the economy in a more sustained, stable way. If London wants to have a stronger financial market, it better hope for a quick resolution between the U.K and E.U.

Brexit Creates Interesting Dynamic For Buyers and Sellers of London Real Estate

Before the United Kingdom voted to leave the European Union, London’s once red-hot real estate market had already begun to cool. After the referendum, the cooling sent chills down the back of some sellers, who responded by dropping discounted asking prices even further.

The vote, Prime Minister David Cameron’s resignation, and a slowing economy has culminated in a fear that one London real estate agent said could only be topped by war.

For a market that has soared for years on the back of foreign interest, some sellers cannot get out fast enough. But for those global buyers, this storm of events has created the perfect opportunity.

According to one report, London saw a 38% jump in real estate sales in the week following the referendum. This spike was primarily driven by a drop in the British pound, which declined as much as 15% against the dollar following the vote.

London has long attracted wealthy foreign citizens from places like Asia, Russia, and the Middle East. Combined with softening prices, the depreciated currency created attractive investment opportunities for those looking to buy in dollars.

Time will tell if the real estate market has found a bottom. Some analysts do not believe the recent surge will continue. Given the current weakness, some sellers are planning to ride out the storm in hope of seeing a recovery. Conversely, risk-averse buyers are willing to wait and see if property values continue to sink.

Welcome To Frankfurt: A Must Read

Business Insider released a story yesterday detailing how Frankfurt had begun to sell itself to international financial institutions in the wake of the Brexit vote that has thrust the United Kingdom largely away from the ability to define economic happenings in Europe for the first time in centuries.

The move is interesting because it shows how the rest of Europe refused to seem polite by not picking up the pieces of profit that still exist from the fragments of the boom that the Brexit vote caused in European financial markets. Europe is committed to moving on from this, and Germany is not resisting the urge to do whatever it can to fill the albeit distressingly large that the U.K. has left on the E.U.

This makes sense, and you can’t blame Germany or any other country for wanting to benefit as much as possible from the Brexit vote and wanting to shield domestic industry from this vote as much as possible. It makes sense, and while Germany leading Europe makes many cautiously optimistic for what could could of the auto and tech sectors, it is sad to think that for the first time since the end of World War II, Britain will not have a definitive hand in deciding what goes on in Europe.

It makes me wonder how Britons who wanted to remain close with Europe will react to the changing times, and how Europe will choose to engage with Britain into the future.

Precious Metals Rise as Uncertainty Grows

It seems that to keep economies afloat, the central banks around the world rely on printing money and keeping interest rates low. This concerns many investors. Adding concerns about growing debt and now, Brexit, investors are loosing their faith in financial assets.

As a result, the precious metals are in demand again. In the past few weeks, gold has risen substantially. Now, it trades at $1,350 per ounce, a two-year high. Silver has risen as well to nearly $20 an ounce.

One of the ways to acquire precious metals is by buying bullion. This can be done in the form of bars or investment coins such as American Eagles, South African Krugerrands, or Canadian Maple Leafs. However, this requires that investors store these assets.

An alternative is to buy precious metals ETFs. According to TheStreet.com, gold ETFs have now hold 2,000 tons (64 million ounces) of this precious metal. Last week alone, the holdings have increased by 1.7 million ounces due to increased investor interest.

Among the most popular gold ETFs is Gold SPDR ETF (symbol: GLD). When it comes to silver, iShares Silver Trust (symbol: SLV)is one of the options. Yet another alternative is to buy stocks of precious metals miners. These shares, however, may not fluctuate exactly the same way as the metal prices.

In any case, options to diversify portfolios with precious metals are varied and wide.

Goldman Sachs Ready To Move Jobs Out Of The UK?

The British referendum to leave the European Union (often called Brexit) has certainly stirred up plenty of controversy and caused a lot of companies and individuals to reconsider their plans. The latest to announce a possible departure from the country is the historic firm Goldman Sachs.

Business Insider is reporting that the banking giant has made noise that it would like to take its business out of the country and into another European nation that has remained part of the EU. This alone could be a huge exodus of jobs, as the company has some 6,500 employees in the United Kingdom at the moment. The scary thing for the British people is that this is just one company that has mentioned this as a possibility. There are a lot more who are certainly considering it as well.

The United Kingdom has long been the financial center of Europe. Not only does it have a long history in the industry, but the country is also important to currency trading markets. It is geographically positioned in such a way that it makes sense to standardize a lot of the trading around the time set in the United Kingdom.

The financial markets all around the world certainly did not expect the vote to go the way that it did last week, and they have been rattled ever since. Those who voted in favor of this change may soon regret the decision that they made if the trend continues in this direction. If there is one thing that companies do not like it is uncertainty, and right now the country is filled with it.

What Will Happen to London After Brexit?

Brexit is now a fact. The United Kingdom will leave the European Union, possibly without Scotland. In a recent article, CNN Money lists cities that are likely to profit at the expense of London.

First of all is Frankfurt, the German financial capital. According to the EU regulations, banks and insurance companies can operate freely withing the EU member states as long as they are based in one of these countries. Once Britain leaves, many of these financial institutions will transfer to one of the remaining 27 countries. Since Frankfurt is among the most important financial centers, this is where some of these companies are bound to go.

The next potential winner is Luxembourg. In this tiny country, there are over 140 banks with asset approaching $900 billion. Meanwhile, the French will not want to stay behind and will seek to attract finance to Paris. The French capital already gets 35% of Eurozone’s bond issues.

The Irish capital, Dublin, is recognized as technology hub. After the UK exits, it’s quite possible that more high-tech companies will move there from the UK. Also, if Scotland breaks away, Edinburgh could get more finance-related business as well. After all, the Scottish capital is already the second biggest financial center in the United Kingdom.

The British profit greatly from London. The city is among the major financial centers in the world. Now, the continental European nations will seek to grab some of London’s share of business. Billions of dollars are at stake.

Gold Gains Continue After Brexit Vote

Gold has risen for several sessions already and currently trades at over $1,300 an ounce. Usually, MarketWatch reports, gold and dollar trade in the opposite directions- as one rises, the other falls. This time, however, it’s different. This is due to the British vote to exit the European Union.

Once the UK government officially declares its country’s desire to leave the EU, volatility is likely to increase. It is quite possible that the Brits will not get the same access to the common market if they’ll seek to limit the free movement of people. In fact, many Brits voted to leave because they feel that there are too many East Europeans working in their country, even though there are hundreds of thousands of British citizens working and living abroad.

Brexit vote has also triggered new calls for a Scottish independence referendum. It is quite likely that Scotland will leave the United Kingdom, possibly dealing a great blow to the British Pound.

In times of uncertainty, gold has acted as a storage of value and a hedge against inflation, so no wonder the yellow metal shines again as investors seek safe havens in times of turmoil.

Investors can acquire stakes in gold by buying it outright, investing in multiple Exchange-Traded Funds, or even selecting gold mining stocks. As Brexit nears and negotiations with remaining 27 EU states start, risk appetite will quite possibly stay low.

Stock Markets Fall Worldwide

Markets Dropping All Over the Planet After Brexit

After the shocking result of voting in the UK that led to what is called the “Brexit,” the world felt the result of this almost immediately.

As a whole, the global stock market lost close to $2 trillion on Friday after the United Kingdom voted in a referendum to leave the European Union. Though the huge hit to the economy was easily seen and felt, it would only get worse as stock markets are continuing to fall way down.

The S&P 500 closed down to 2% on Monday only after falling by 3.5% that Friday. For Dow Jones, there was a 261 point drop off, signaling a pretty significant 3% drop almost instantly after the end of voting. The UK had it even worse, as the pound fell to just $1.32 per pound, a low that hadn’t been seen in thirty-one years but now is apparent after the Brexit vote.

Analysts are all but certain that a recession will hit in the near future, some at Goldman Sachs saying it could happen as early as 2017, and that they “sharply” cut down on their growth forecast for the UK. A reason they feel this will take place is due to the trouble that will be encountered when exporting banking and financial services to the EU. There was also the fact that uncertainty surrounds everything, most notably what deal the UK will get and also when the UK exit process will officially begin.