When David Cameron decided to let the British people vote
on Brexit, he did not realise that he would open a real can of worms. Before
the referendum I declared that Brexit would not be the reason for a collapse
of the world economy but that it could be the catalyst for such a collapse.
We have only seen a few days’ reaction with heavy
intervention from central banks around the world but judging by the massive
volatility we have seen so far, there is now a very high likelihood that a
major secular decline in the world economy will now start to unravel. The
next few weeks and months are likely to be a lot worse than the 2007-9
crisis.
Unaccountable and unelected bureaucrats should not
decide over 500 million people
The problems areas will not just be in the economy but
also on the world political stage. The elite is not pleased with Cameron that
he gave the British people a democratic vote on the question of the country’s
EU membership. Political leaders know that it is very dangerous to give the
people the option to decide on any important issue. Only the Swiss people
have this right and exercise it frequently. In most countries the elected
government take all the important decisions without consulting the people.
And in the EU it is even worse than that. Because most of the binding
decisions for all member states are taken by unelected and unaccountable
officials. And the European Court of Justice stands above all member states’
judicial systems.
The British people have with a small majority rejected to have their
sovereignty given over to Brussels. They have also made it clear that they
don’t want to be forced to accept the EU rules on unlimited and uncontrolled
immigration which if continued will destroy the fabric of the U.K. and the
rest of Europe.
The Elite failed to trick the UK to stay in the EU
What is quite astounding is that Cameron and the British
government lost the vote in spite of having every economic expert in the
world on their side as well as Obama, Lagarde, Carney (governor of the Bank
of England) and many others. They also published reports that wages would go
down as well as house prices and that taxes would go up. In the end all this
propaganda became counterproductive. The British people just didn’t believe
what they heard and they have now called the elite’s bluff. This is why there
is panic in many high circles in the world. But the elite is going to use all
means to reverse the UK decision. Tony Blair, the ex UK prime minister, is
now proposing himself as the main negotiator for the UK with Brussels. Blair
is an Elite member and earns $10s of millions on cozy deals on behalf of the
elite, similar to Bill Clinton. There can only be one purpose for his
intervention in the Brexit negotiations which if it happened would not bode
well for the UK. But I doubt that the conservatives would welcome an ex
labour politician and elite member to act on their behalf.
For the EU officials this is a serious defeat and a
dangerous erosion of their authority to rule Europe as a Superstate. Because
now there are already demands for referenda in many European countries like
France, Holland and Denmark. The EU elite will do everything in their power
not to let any of the remaining 27 countries have a democratic vote. But the
cat has been let out of the bag and it will be very difficult to stop this
drive for freedom from the Brussels shackles to spread.
Problems in the EU is only the first of many problems to
hit the world in 2016
The dilemma for Europe and also for the world is that
this political unrest is happening in a global economy and a financial system
which is on the verge of collapse. Since the beginning of the crisis in 2006,
central banks and governments have created around $100 trillion of additional
debt, reduced interest rates to zero or negative and manipulated most
markets. In spite of that, the very serious problems in the financial system
that emerged in 2006 have not been solved. On the contrary they have grown
exponentially with global debt having doubled and derivatives of $1.5
quadrillion being mostly worthless and out of control. The European banking
system is on the verge of collapse and this will also spread to the fragile
American and Asian banks.
Panic in markets to come
Initial global trading on the day after the Brexit vote
had panic written all over it with the Nikkei down over 7% and the pound
losing over 10%. Panic soon spread to the European markets with the German
Dax index down 7% and the Euro falling 2%. Intervention and imminent QE have
turned stock markets around but not the currencies.
The dollar and the yen were the main beneficiaries of the
currencies but that is likely to be short lived as all the currencies compete
in their race to the bottom.
The real winner is of course gold which at one point rose
$100 but is so far $80 up. What few investors realise is that gold has
outperformed all investment classes both in this century and in 2016. Since
no investment advisors understand gold, less than 1/2% of investors worldwide
have gold in their portfolios. Also, virtually every country quotes gold in
dollars. But that is of course a total fallacy. Gold should firstly be
measured in ounces or kilos since it is not a dollar based commodity at all.
And secondly gold’s value must only be measured in the local currency of the
investor. There is a local gold price for every single currency in the world.
Gold in dollars is up 26% in 2016 whilst gold in pounds is up 43% this year.
So the best insurance against the problems in the world economy is gold
whatever currency you measure it in. What most investors don’t realise and
their advisors never tell them is that in real terms their stocks are down
60-70% this century and 20% this year. Real terms is of course measuring
stock indices against gold.
Gold is the best insurance
Gold’s move is now just beginning. We have seen a long four-year
correction of the long term uptrend and we are now on the way to new highs
which very well could happen in 2016. As we see the bubbles bursting in
stocks, bonds, property and derivatives and as currencies continue to decline
due to deficits and money printing, gold will continue to outperform all
these asset classes. But gold should not be seen as a conventional
investment. Instead gold is insurance against a rotten financial system and
gold is protection against irresponsible governments which are buying votes
by printing endless amounts of paper money and destroying their currencies.
Gold held outside the investor’s country of residence is also vital
protection against coming exchange controls. It is not even advisable to hold
gold within the EU even in private storage. With the imminent potential
demise of the European banking system, bail-ins of investment assets within
or outside the system is a possibility. Switzerland and Singapore are of
course not in the EU.
Physical gold (and some silver) will outshine all other forms of wealth
preservation as long as it is held outside a financial system which is
unlikely to survive in its present form.
Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management AG
matterhorn.gold
goldswitzerland.com
