With the Brexit we…got what is called a Black Swan Event… As a result I believe that we just entered a period of correction that will eventually lead to a bear market. That bear market could last quite sometime and will be sort of be like Chinese water torture as there are 100’s of dominos out there set up and ready to fall and…the UK vote was just the first one. Anyone who has played dominos knows that once the first domino falls, the rest soon follow and the speed of the fall usually increases along the way.
The comments above and below are excerpts from an article by Mycroft which has been edited ([ ]) and abridged (…) to provide a faster and easier read.
Some of these dominos are:
1) Management has no incentive to buy back shares as granted options will expire worthless, so why borrow and take on debt? So no more backstop for stocks.
2) Every earnings report released this coming quarter will start off with the CEO saying “Because of the Brexit we are lowering our guidance.”
3) There may be many more referendums from other EU countries that may also wish to exit the European Union.
4) As more and more investors start losing more and more money in the stock market, each will curtail spending and since consumer confidence is 70% of our economy, both the economy and retail will suffer.
5) With confidence gone, people will not look to invest in homes or even remodel, so homebuilders…and home improvement stocks…should suffer.
6) Interest rates will keep falling as more and more countries head toward negative interest rates and the results will not be pretty.
7) Financials like Banks and Insurance companies will lose money as their profits get reduced due to negative interest rates.
8) People will stop buying new cars and will spend more time at home in order to save money.
9) Margin calls should start coming in fast and furious and with over $500 billion in margin debt out there, tons of investors will be getting margin calls soon.
…We just needed one major negative catalyst to bring the markets down and we got that…in the Brexit. Obviously with the process for the UK to exit the EU possibly taking over two years of negotiating to actually happen, this will be a constant weight on the markets in Europe and on U.S. multinationals doing business there.
I have been in 75% cash for sometime now and believe that those who are in a high percentage of cash right now will be shooting fish in a barrel when this all gets played out. The world is interconnected in so many ways these days, so there is really no place one can hide except for cash as “Cash is King” right now.