British Voters Have Spoken!

* Currencies get crushed!
* Gold soars higher! .
* What will the unintended consequences be?.
* Finally! Some real data today!.

And now. Today’s A Pfennig For Your Thoughts.

Good Day. And a Happy Friday to one and all! Oh, me, oh, my. The British people have spoken, and they spoke the language of leaving the European Union/ EU. I was quite surprised by this, because right after the voting closed, the feeling in the markets was that BREMAIN had prevailed, and the pound sterling rose to 1.50. But a mere 6 hours later, it was a completely different story, folks. And pound sterling has dropped 10% to a 30-year low of 1.3230. I’ll talk about this and more today, so strap yourself in, make sure the lid is on tight of your to-go coffee cup, and let’s get moving! The Beatles greet me this morning with an excellent morning song, and one of my fave Beatles songs: In My Life.

So. This is what currency chaos looks like folks. I’ve seen this a few times in the 24 years that I’ve been trading, writing about, and following currencies. But we haven’t seen anything like this in quite a few years. Basically, with 378 of 382 districts having reported in the U.K, the results show that the U.K. voted in favor of leaving the European Union, and with that news brought about HUGE changes in the currencies and metals. Yesterday, traders were going out on a limb thinking that the HUGE voter turnout would result in the U.K. remaining in the EU, but those guys lost their shirts overnight for sure. This morning we have Japanese yen, dollars, and Brazilian real as the only currencies gaining. Gold has gained $63 overnight, so Gold holders are happy about the BREXIT results. And the U.S. Treasury 10-year yield dropped to 1.49%… That’s right, I said 1.49%!

It’s not just pound sterling getting hammered this morning, although the non-sterling currencies are getting hammered with a smaller hammer. The euro dropped from 1.1318 to 1.1070 overnight, and the Aussie dollar (A$) which yesterday traded over 75-cents has dropped to .7385. The euro-alternatives, of francs, krone, and krona all have seen a pound of flesh taken from their values this morning, and things couldn’t look any uglier with the currencies, unless you own yen. The metals are better with Gold up to a 3-year high this morning, and Silver pushing toward $18. Platinum and Palladium just can’t seem to find a bid these days though.

Unknowns. That’s what is driving the pound sterling to 30-year lows overnight. Not only do we know what the turmoil will be in the U.K. economy, balance sheet, trade balances, etc. but we also have the unknown of what PM Cameron is going to do. Right now it appears that he has announced his resignation as PM. Look, I’m not going to celebrate this result, just like I wouldn’t have celebrated had the other side won. Like I said the other day, I don’t have a dog in this hunt, as I don’t live there, but if push comes to shove, I would prefer not to have to deal with unknowns and currency chaos.

But I get it. this is a blow against large Government. And that large Government extending their reach and power. Now, we get to see if the U.K. Gov’t nulls the referendum results and sends this decision to Parliament, as I explained to you all earlier this week. No, it wouldn’t be announced today, right after the vote. But at some later date, IF, it is announced at all! Maybe, just maybe, because you never know, the U.K. Gov’t will take the results and accept them for what they are.

And now we have to start to watch for copycats. I would offer that France would be next, and they already have a short version FREXIT. I’ve already seen that Scotland’s leader announced that she will push for a 2nd referendum to leave the U.K. And there will be more.

I’m told that while there is chaos in the prices of the currencies, that the markets are actually trading orderly, so that’s a good thing. I would have thought with the wild swings in the currencies that things could be getting pretty wild and crazy. But then the U.S. traders haven’t entered into the ring yet. Who knows what kind of craziness they will bring to the party, but I doubt they’ll just show up and do some rope-a-dope today. But right now, pound sterling has come back a bit from the 30-year low. Do you think that someone thought that the selling was a bit overdone? I do..

My longtime colleague, Chris Gaffney, sent off a note to the PR people this morning, telling them that “The vote will definitely make it very difficult for the FOMC to raise rates this year, and in fact the futures are currently giving better chances of a rate cut in the U.S. than a rate hike.” And that got me thinking. Why do the PR people need to get additional stuff IF they read the Pfennig each morning? Hmmm. There are all sorts of directions I could go from here, but I’ll just leave it at that!

Yes, this is just the tip of the iceberg right now, folks. We’re going to see the European Central Bank (ECB) have a knee-jerk reaction to this news, and other Central Banks around the world will join in. So, make sure you’re buckled in snugly, and your arms and legs are inside the apparatus at all times during this ride!

But Gold, Treasuries, yen and reals are the things to own this morning. And going forward I would be suspect of reals. I have no idea why they are on the rally tracks this morning, but they are. Just like I have no idea why investors have flocked to Japanese yen, but they did, and it is what it is, right? I told you earlier in the week that I thought that euros and sterling would get whacked if the BREXIT vote won, but that Gold and francs would enjoy the sunshine of an exit vote. Well, I’m surprised that francs aren’t participating in the rally of safe haven assets. They have in most cases in the past. But maybe they are getting hammered (down 2-cents since yesterday) due to their being so close to the Eurozone.

There are other things going on today, but in reality it’s all about the BREXIT vote results, and what is now a laundry list of unknowns for the markets to sort out. And I’m sitting here thinking. “What will be the unintended consequences of this vote?” You know there will be some unintended consequences down the road, but for now, it’s just dealing with the knee-jerk reaction the markets have had. At this point I would think that time will tell whether this was a game changer for Central Planning Governments, or it was a temporary setback for them.

U.S. Treasury 10-year yields at 1.49%? That’s crazy folks. I would bet a dollar to a Krispy Kreme that anyone buying a 10-year Treasury at less than 1.50% is going to rue the day they did so, in a couple of years. But, that’s just me, being me, about these low yielding bonds. Longtime readers will recall that I was a bond trader in my past life. And I know exactly how all this works, and it’s not going to be pretty. Remember a 10-year bond is 10 long years!

And Gold shot up $64 overnight. I don’t think even the price manipulators wanted to stand in front of that bus! But where does Gold go from here? Is this the big breakout that we’ve been waiting for? Or will we see a whacking of the shiny metal once again from the price manipulators once the dust settles on this rise in Gold? I’m thinking that this could be the big breakout for Gold, but that’s just my opinion and I could be wrong.

I need to get the letter out early this morning, so investors wanting to do something first thing will have the Pfennig before doing so. With that thought, I had better get this out the door, as it’s already running late! UGH! The time it takes to put this together each morning, continues to get longer, and longer!

The U.S. Data Cupboard finally has something for us today. Yesterday, the Data Cupboard had the leading Indicators which dropped this month from last month’s level. So, those are bang on with what I’ve been saying about the U.S. economy this year. Today, we’ll see the color of the Durable Goods, and Capital Goods Orders, and I don’t think they will be good for the dollar. But with all this flight to safety going on in the currencies, a negative print in Durables might not make a difference on a day like today.

To recap. The voters have spoken, and in the U.K. the voters voted to leave the European Union/ EU. This has sent shudders through the markets overnight, and the U.S. traders haven’t even come in yet! But the pound sterling has taken the brunt of the selling dropping 12% at one point overnight, but coming back a bit in early morning trading. The euro is getting hammered, along with A$’s, and kiwi, but Gold is up $64 overnight, and Japanese yen is gaining on a flight to safety that is leaving the Swiss francs out in the cold this morning. Bob Marley is singing on the iPod right now, don’t worry about a thing, ’cause every little things is going to be alright. I sure hope he’s right, but right now things look pretty ugly out there for non-Gold holders.

For What It’s Worth. I don’t have time to do this today, folks. I’ll get back to it on Monday, but for now, I need to get this out the door .

Currencies today 6/24/16. American Style: A$ .7385, kiwi .7065, C$ .7665, euro 1.1070, sterling 1.3705, Swiss $1.0242, . European Style: rand 15.1885, krone 8.5450, SEK 8.5625, forint 286.88, zloty 4.0447, koruna 24.4940, RUB 65.56, yen 102.20, sing 1.3560, HKD 7.7603, INR 67.94, China 6.6234, pesos 19.07, BRL 3.3375, Dollar Index 95.64, Oil $47.59, 10-year 1.49%, Silver $17.88, Platinum $977.47, Palladium $549.09, and Gold. $1,327.00

That’s it for today. Sorry about the short letter today, but I really wanted to get this out before it’s old news. The end of a very long week for yours truly! But I did make it in every day this week, that’s something for me! 3 little birds, singing a sweet song, and this is their message to you, Don’t worry about a thing, ’cause every little thing is gonna be alright. I’m going to keep singing that song today in my head, so I don’t get depressed by the price action in the currencies. Sure Gold could brighten my day, but that’s just one asset. There are far more currencies getting their you know what handed to them! I’m feeling pretty perky this morning, better watch out! I received an amplified bible from a friend in the mail I can’t wait to use it! Thanks Lee! And with that, Redbone takes us to the finish line today with his song: Come and Get Your Love. another example of the different styles of rock in the 70’s… I hope you have a Fantastico Friday and Be Good To

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts