Archive for the ‘Global Investing by Matein Khalid’ Category

The hunt for value in global equities 

Wednesday, July 26th, 2017

By Matein Khalid

July 24, 2017


The US stock market has been resilient to the political and policy firestorms created by the Trump White House. Trump’s failure to enact tax reform or a major fiscal stimulus has restrained but not destroyed the “animal spirits” of the Wall Street bulls, even if the failure to “repeal and replace Obamacare”, a key campaign promise, could prove catastrophic for the Republican in the 2018 Congressional elections.


The S&P is expensive relative to historical valuation ranges at 18 times forward earnings on the eve of the Federal Reserve’s shrinkage (“normalization” in Yellen speak!) of its $4.5 trillion balance sheet this autumn. However, its high valuations were anchored by 7% revenue and 14% earnings growth in the first quarter. It is highly likely that US companies will meet consensus earnings growth estimates of 8% for the second quarter. Volatility, while low now at 10, could well rise this autumn as US central bank begins monetary “normalization” despite Dr. Yellen’s dovish testimony to the Senate Banking Committee.


The most dramatic theme in the US stock market is a shift from growth/momentum (FANG, semiconductor and Internet shares) to value shares, primarily financials trading at modest multiples of tangible book value.


US money center bank shares have benefited from this shift, given that a steeper US Treasury bond yield curve, a $100 billion capital return windfall in the Fed stress tests and a promised rollback of Dodd and Frank has attracted exceptional inflows into big banks, led by J.P. Morgan, Citigroup and Bank of America. I have also been bullish on alternative asset managers, led by Blackstone and KKR. Blackstone manages more $360 billion and has just raised funds for the world’s largest infrastructure fund. Blackstone and KKR boast world class private equity, credit and real estate platforms. Their distribution per units (DPU) are attractive to yield starved investors. With Brent’s post Vienna collapse, oil and gas majors (notably Chevron, Occidental) also offer compelling value. The correction in NASDAQ makes it attractive to reenter Microsoft, Oracle and Juniper Networks.


European equities are a crowded trade and the valuation discount to the US does not offset the risk of a decline in earnings growth estimates and ongoing political crises such as Brexit, the Russian sanctions, the war in Ukraine, the rise of populist political parties despite the defeat of Marine Le Pen in France and Geert Wilders in Holland, terrorism and the migrant crisis.


Once the Fed moves on its balance sheet, ultra easy money from Mario Draghi is living on borrowed time. Valuation multiple in Europe will contract as the ten year German Bund yield rises to 90 basis points and EPS growth estimates are slashed. The biggest risk is a Italian snap election won by the Five Star Movement, a referendum on the Euro and Italexit. This could all lead to a plunge in the Euro Stoxx 600 index level to 320.


In Asia, Japan is my favourite stock market as its valuation is inexpensive at 13.6 times earnings while the Bank of Japan’s zero yield policy at a time of Fed tightening means the yen depreciates to 118 against the US dollar. This is hugely bullish for Nikkei exporters, mainly Sony and Hitachi. I am also bullish on Japanese property developer Mitsui Fudosan, a proxy for Kuroda’s reflation trade.


Asia ex Japan is the most attractive segment of the emerging markets since valuations are still modest at 1.6 times book value, given that the S&P 500 index trades at 3 times book value. Asian markets face potential macro risks this autumn. Government bond yields in the US, Britain and Germany have begun to rise. Trump’s protectionist policies are a threat to cyclical exporters South Korea and Taiwan. The Hong Kong property market is also vulnerable to the rise in US dollar interest rates. Despite the fall in the US Dollar Index, the Philippines peso continues to depreciate, a proxy for the exodus of offshore capital from Manila. Malaysia, Southeast Asia’s top oil/LNG exporter, is hurt by the 1MDB sovereign wealth scandal and softness energy/commodities prices. Thailand’s 3.6 dividend yield and 14.5 times forward earnings remains attractive at a time of rising exports, rural incomes, infrastructure spending and tourism arrivals. Singapore industrial and office property trusts also offer attractive total returns.


After a 23% rally in 2017, the MSCI emerging markets index trades at 13 times earnings, at least 3 full points above its March 2011 bottom. This would suggest buying telecoms or power companies with high dividends and free cash flow, not higher beta banking or technology shares.

The Indian rupee will remain under pressure by King Dollar!

Monday, November 21st, 2016

By Matein Khalid


Trump’s election, a trillion dollar bond market meltdown and the BJP government’s draconian currency reform have lead to predictable outflows of offshore money from Dalal Street. Fund managers must slash exposure to emerging markets debt when the US dollar surges to 14 year highs, the US Treasury ten year note spikes up 50 basis points and the Federal Reserve is on the precipice of at least four rate hikes in December. This has led to a depreciation in the Indian rupee to almost 68, a post Modi low. Depository data suggests FII outflows from the Indian government bond (G-Sec) markets are comparable to those witnessed during the “taper tantrum” and rupee freefall in August 2013.


While Indian government bond yields have plummeted 120 basis points in the past year and Modi’s currency monetization will swell banking sector deposits, broaden the tax base and deal a deflation shock that enables another RBI repo rate cut, India cannot remain immune from Fed risk, Trump risk and dollar risk as the world’s bond markets are linked together by trillion dollar daisy chains of leverage. As Trump’s economic policy agenda is fiscal stimulus and increased Uncle Sam deficits, US inflation and interest rates will continue to rise in 2017.


This global scenario is bad enough but Modi’s anti-black money blitzkrieg has taken out 86 per cent of the currency in circulation and dealt a literal fresh “cash shock” to Asia’s third largest economy. While $50 billion in fresh deposits in the Indian banking system will cause investment demand for G-Secs to rise, this is offset by the outflows from the Indian debt and even equity markets as offshore money scrambles back to Wall Street.


Emerging markets debt has been leprosy since Trump became President elect of the United States. Yields on Mexican, Brazilian, Turkish, Indonesian and South African sovereign debt have risen at least 50 – 60 basis points since November 8 though, ironically, Modi’s cash shock meant Indian G-Sec yields have actually fallen. Yet even though the yield on the ten year Indian G-Sec note has fallen to 6.45%, the Indian rupee has fallen 2% in the past three trading session alone. My guess? Offshore hot money is fleeing Dalal Street, given the extreme positioning in India’s debt market. Bharat Mata, of course, is the most crowded consensus macro trade in emerging markets – and crowded consensus spells danger.


As fish caught in the Bay of Bengal rots in Calcutta docks, as money lenders in Andhra Pradesh and Karnataka face financial ruin, as homebuilders in NCR and jewelers in Bombay’s Zhaveri Bazaar find their black market cash loot vanish to money heaven, the Indian economy will fact its worst consumption shock since the early 1990’s. Like the Fed on 9/11, the RBI must immediately cut interest rates by 100 basis points as Modi’s merry men did not issue enough 100 rupee bills to compensate for the money multiplier cash shock.


This gross incompetence would never have happened if the BJP high command had extended Dr. Raghuram Rajan’s term as RBI Governor.


In retrospect, Modi’s crackdown against black money, tax evasion and endemic corruption has been a spectacular success yet it can also plunge the economy into a protracted slump and spawn a political backlash.


With 90% of Indian workers in agriculture, the informal sector, agricultures, retail trade, shops and small home factories, the cash squeeze has led to monumental economic and psychological pain. The Keynesian multiplier will choke consumption and choke economic growth. India faces a GDP hit of at least 1%. The BJP’s small trader vote banks in the Hindi heartland are also enraged – and this creates UP election risk. The mismanagement of the banknote demonetization could well raise political risk for the GST in the Lok Sabha. These political and financial storm clouds will pressure the rupee to 70. The rupee is still a carry winner against the South Korean won and the Japanese yen, which feel the full impact of Trump, Fed rate hikes and the slump in world trade.

Citigroup shares were a fabulous winner in 2016!

Monday, November 21st, 2016

By Matein Khalid


Citigroup has been my favourite US money center bank in the US, recommended in successive columns, most recently at 45 a month before the US election. The bank’s shares surged 15% after the election of Donald Trump for multiple reasons. Trump’s pro-growth policies mean a inflation risk premium in the bond market as Uncle Sam’s deficits and debt issuance surge, the reason the ten year US Treasury note rose from 1.75 to 2.34%. A steeper US yields curve is extremely bullish for US money center banks. The Republican Congress also means a potential rollback of Dodd Frank and the Volcker Rule, which Trump branded a “disaster”. This is hugely positive for Citigroup, J.P. Morgan, Bank of America and Wells Fargo as it means less compliance risk, more trading and market making revenue, less risk of any 1930’s Glass Steagall legislation to separate commercial and investment banking. Trump’s win also means easier Fed stress test rules, more bank mergers, less risk of restrictive capital surcharges. Trump’s platform even includes a moratorium on financial regulation. Both Citi and Bank of America can request higher dividend payout ratios at the next Fed stress test and the 2 year forward US Treasury note yield curve (2018) has shifted up 100 basis points, a 15-20% EPS windfall for both Citi and Bank of America. So the spectacular financial windfall in both banks before and after Election Day was no coincidence.


Citigroup’s transformation since Michael Corbat became CEO in November 2012 after a boardroom palace coup ousted Vikram Pandit has been one of the great money making stories of international banking, one I chronicled here in this column at least a dozen times in the past four years as its shares more than doubled from 25 to 55 as I write.


Citi has rebuilt its Basel common equity Tier One capital ratio to 12.6% and reduced its legacy Citi Holdings assets from $500 billion in 2009 after the bank’s near failure and government bailout under TARP to a mere $113 billion even as it shrunk its balance sheet from $2.5 trillion to $1.9 trillion now. Citi has revamped the risk controls in its Banamex subsidiary in Mexico where a major fraud caused it to fail a Fed stress test. Citi has slashed its consumer banking footprint in high risk emerging markets where it lacked scale, from Turkey to Brazil, Argentina to Egypt. Citi’s investment banking and trading divisions have begun to perform again, the reason the bank beat its third quarter earnings estimates. Of course, emerging markets still contribute 40% of Citi’s bottom line, more than in any major American bank. So Citi will be hit hardest if Trump launches an assault on NAFTA (Banamex) or China trade (the Asian consumer and corporate bank).


I believed Citi was grossly undervalued when it traded at 45 a month ago or at a 34% discount to tangible book value and 9 times forward earnings. However, I do not recommend new money to buy the shares now after their sharp spike at 55 – 56. The easy money in Citi made after the Chinese yuan wobble in March when the bank was a no brainer at 35 and after Brexit when the shares fell to 39. I believe the shares can well give us another opportunity below 50 if risk assets sell off in January or February, as the Age of Trump dawns on world history.


Longer term, I have little doubt that Citi will achieve management’s 10% return on equity target. Citi will also return at least $6 billion to shareholders in 2017 as payouts creep higher and share buybacks accelerate. Corbat is obsessive about reducing the bank’s risk weighted assets in capital intensive, low return businesses and slashing the cost/income ratio to the early 50’s. In 2007, the bank’s Chuck Prince boaster “the Citi never sleeps”. In 2008, Citi’s $50 billion in losses wiped out a generation of shareholders and unnerved depositors, who did not sleep! The New Citi finally lets us sleep!


Christmas came early in 2016 to owners of Wells Fargo and Bank of America, both profiled ad nauseous in this column. BOA Merril has risen 30% and achieved my $20 target as the most interest rate money center bank in America, thanks to its $1.25 trillion deposit base, with $400 billion in deposits that cost the bank nothing. The bank has also paid $70 billion in crisis era fines (a litigation risk peak). Trump means Merrill Lynch’s “thundering herds” will be in a stampede again in wealth management, mortgage and lending in the US. Brian Moynihan has creates a banking colossus from the ghosts of Charlie Merrill, Countrywide, MBNA, First Boston and LaSalle Bank. The American banking market will be white hot next year.



Strategy ideas amid the trauma of Brexit

Monday, June 27th, 2016

By Matein Khalid


It is impossible to predict the macro zeitgeist in real time as a global political event of such seismic importance unfolds before my Bloomberg screen. So I go all cash and fly to Munich not to seek peace in our time but to revisit loony King Ludwig’s Bavarian Gothic fairy tales castles, the cafes of Schwabing/Marienplatz and visit Garmisch with my liebe Hausfrau. There will be a bloodbath in global finance in the next six months. Why? Bank credit default swaps suggest a rise in funding risk. This is Lehman all over again, only worse.


Note Brexit crude oil fell 5% on Brexit. The cost of bank risk will skyrocket in a world where Barclays and RBS shares can fall 20% in a single session. Is this negative for GCC banks, the largest component of regional stock markets? Is the Queen of England English (well, she is genetically German, thanks to Empress Vicky and Prince Al, the bearded dude on the big chair in Hyde Park!).


Defensive sectors? Note UK education publisher Pearson PLC rose 2%. So did Swiss pharma Novartis. Gold? If you are lucky enough to get a profit taking move down to $1310 for new money. It makes total sense to short Tesco with its huge sterling revenues but buy Carrefour, now 7% cheaper even though it has no real sterling revenues. Vive la France, vive MAF Holdings, vive Carrefour!


The real winner of Brexit? Boris Johnson, possibly the next Old Etonian Prime Minister. Donald Trump scored the marketing coup of the millennium by making sure he opened a Scottish golf resort on the day Brexit shook the sceptered isle, this green and pleasant land.


The Chicago Volatility Index has soared 32%, a compelling argument to sell put options on devastated UK banks. Why not Barclays New York ADR, down 30% overnight, a screaming option strategy. Jes Staley was one of the smartest investment bankers of my generation at J.P. Morgan and he will turnaround the 300 year old Quaker bank Bob Diamond’s LIBOR rigging banksters destroyed. Dividend cut? Yes. Gulliver’s travels? Futile since HSBC shares have been such a disaster despite $100 billion in write offs, legal fines, 80 business exits, a $109 billion Mexican money laundering fine, 50,000 payroll cuts, the $5 billion sale of HSBC Brazil to Banco Bradesco. Profit warning? Yes.


I have done my best to hedge global macro risk in 2016 by recommending (table pounding!) the most shunned, least foreign owned emerging market in Asia – Pakistan. This is a local play since the biggest holders of Pakistan sovereign Eurobonds are Khoja financiers of Zurich and the Gulf, not the big EM leemings in the City, New York and Singapore (Aberdeen Wallah!). Friends who trusted me on Pakistan lucked out in the best performing stock market in Asia or Europe in 2016. Bull market zindabad! Christmas came early on McLeod Road in Karachi.


I was horrified that so many Gulf family office and institutions have this touching faith in London property even though it is among the most overvalued bubbles on the earth. I have made no secret of my investment thesis on Makkah Umra hostels, an asset class immune to Brexit risk or even the Saudi credit cycle. To exploit a no brainer asset class it is unfortunately necessary to possess a brain, as some of the biggest and smartest families and institutions in the GCC know all too well.


Fund managers shares should be shorted Hundreds of billions of retail money will flee asset managers in US, Europe and, yes, the GCC. Bear markets are savage and merciless. I know. I barely survived several in my own life. How will UK fund managers sell funds on the Continent? Paybacks in Finanzplatz Frankfurt and the Ville Lumiere are being plotted against the City even as I write. Who to short? Notice Invesco fell 10% on Friday. Get real. Get out. A UK asset management platform is no leprosy due to Brexit. Outflows will escalate. Fees will shrink. Markets abroad will vanish. Balance sheets will tremble. Index funds will fail. Firms will die. Private equity firms? A screaming short, with both black stones and black rocks.


The markets assume the European project will unravel. Why else is London down 3% but Italy and Spain down 12 – 14% as I write. There are existential threats to the Euro with the elections/referendum this autumn against the regimes of Rey Manuel and Matteo Caesar, the coolest Florentine to rule Bella Italian since Lorenzo de Medici. If Italy/Spain exits, Monnet’s dream ends. Global equities then fall 50%, as they did in 2008 and 2001.

British equities and recession in the sceptered isle!

Monday, June 27th, 2016

By Matein Khalid


David Cameron, Wall Street’s elite, Mutti Merkel, Obama, the Eurocrats of Brussels, the great and the good of the City and the IMF’s Lady Christine all got it so horribly wrong. I slept Thursday night with sterling at 1.50 on New York and awoke to see it trade at 1.34 on Friday, a 30 year low before the Plaza Accords. Britain has voted to leave the EU and Scotland’s Chief Minister has asked for a new referendum. The next domino to fall could well be Mrs. Merkel, Mother of Europe now that Cameron has committed political hara-kiri. There is now other way to gloss over the fact that, alas, all bets are off in global markets. I never thought I would live to see the day Nigel Farage sounded Churchillian, though with a hint of Lord Haw Haw’s sinister sneer. But I did.


Brexit will have a chilling impact on capex, growth, jobs in England (UK for how long?). Recession is certain if the Bank of England does not stimulate the money markets with a £80 – 100 billion gilt purchases. Morgan Stanley plans to move 2000 employees to Dublin (great) and Frankfurt (awful). This is the tip of the iceberg. Property prices from office towers in the City to cozy pied-à-terre in Belgravia, Mayfair, South Ken and Chelsea will plunge. Battersea’s offplan leveraged Ponzi scheme on the Thames? A 80% price fall in 2017-18.


I see no reason to buy sterling now as the Old Lady of Threadneedle Street has no choice but to resort (lender of the last resort!) to money printing if the recession deepens. It is also dangerous to bottom fish in British equities as profit forecasts will darken this autumn. Bookie stocks in London deserve to be shorted or even delisted for providing such lousy pole forecasts. They should stick to Kim and Kanye or Premier League WFG chav stories. It makes sense to position for second round geopolitical and financial shocks as Article 50 is invoked and the Tories begin another civil war now that Cameron has deprived them from the pleasure of a Thatcher/Heath style regicide.


UK economic growth will take a hit as the Foreign Office and Downing Street rearrange international economic relations. My friends on London currency desks tell me that the Swiss central bank intervened to stem the franc’s safe haven spike. I have loved gold and gold miners, (up 90%) since 2015. Cash is king, queen and grand vizier to me as I see asset prices slammed by contagion.


UK equities will benefit from the pound’s fall only when it bottoms – too bad they do not give us an electric shock in the derrière when this happens. Yet can the Bank of England really kick start the UK economy with rate cuts alone amid such protracted geopolitical and financial market volatility? No. Recession is certain.


UK bank shares, UK property firms and German machinery exporters are obvious shorts in this milieu. The pound is in free fall and can well fall to 1.25, lovely for UK exporters (Diageo, Unilever, Burberry, Victrex) while a disaster for banks and property, the reason Lloyds, RBS, Barratt, British Land and Persimmon are down 20%. The shock to the UK economy is far too traumatic.


All my friend, mostly fund managers and merchant bankers in the City, voted Remain. However, the cabbies I took in Chester and York (went to see Roman and Plantagenet ruins!) were informly Leave, as was my favorite pukka sahib Brit. CIO friend at a major Omani bank in Muscat.


Gold outperformed every other Brexit strategy hedges I know, with its 7% stellar move. I would not commit capital now as there is major blood on a Street far too complacent about Remain. We saw a 25% hit in Japanese equities but the Bank of Japan cannot risk 95 yen and the death rattle of Abenomics. This means massive intervention in the yen money market in Marounuchi, an argument to buy the Nikkei index fund (symbol EWJ). Expect to hear the Federal Open Mouth Committee (FOMC) jawbone markets in high decibel count as the terrified hoofbeats of the Wall Street herds trigger panic in the court of Mama Yellen. The capitulation trade? Deutsche Bank, UBS, Credit Suisse and, yes, Barclays Bank PLC!

Dr. Raghuram Rajan’s lost passage to India

Monday, June 27th, 2016

By Matein Khalid


It is dangerous to speak truth to power in a time of cholera. It is dangerous to tell the truth, to call billionaire oligarchs who have looted state owned banks “crooked”, to call the Maharajah’s political courtiers “venal”, to criticize religious intolerance when a lifelong RSS zealot is the Indian Prime Minister. So Raghuram Rajan, the most brilliant central bank governor to serve India’s 1.2 billion people, obviously had to go. Billionaire oligarchs and the RSS’s brown shorts, stick wielding ideologues are the real kingmakers in Modi’s India seven decades after a RSS assassin gun down Mahatma Gandhi.


Raghu, as he once asked me to call him the only time we met at a New York conference in 1999, stabilized the Indian rupee, slashed inflation and the repo rate, saved India a sovereign credit downgrade, restored monetary credibility with the offshore fund managers who bankroll its 7.6% GDP growth rate, was the most respected Asian central banker at the IMF, the World Bank, the Fed, the Bank of England, the political chancelleries of the world. But a bigot BJP lawmaker, a nonentity who lost his teaching job at Harvard for his communal, extremist poison, branded him “not mentally fully Indian”. This would be hilarious if it were not so tragic that a peanut brained intellectual joke dares to judge Raghu, who I am almost certain will win the first Noble Prize in economics for India since Cambridge’s Dr. Amartya Sen.


This world class economist, a gift from the gods to India and my professional dismal science tribe, was not given a term extention while his predecessor, whose money printing cost Indians a 50% free fall in the rupee and who inflicted the draconian regressive tax of double digit inflation on 500 million poor Indians, served a full five years. Raghu, a man hailed as a genius by the cognoscenti of Wall Street, Liverpool Street and, yes, Dalal Street is sacked by the Prime Minister while men who have plundered India’s public banks and inflamed religious intolerance grace the inner sanctums of the BJP. This is wrong. This is shameful. This is unreal. This will haunt India for decades after Modinomics is exposed as nothing remotely similar to the Reagan/Thatcher economic revolutions that embraced the free market and rolled back the state in the 1980’s. But, friends, Romans, I publish this column to bury Dr. Rajan, not to praise him.


Raghu returns to the realm of ideas in Chicago where he is happiest. I do not blame him. A man who refuses to toady up to the political masters as RBI Governor is anathema to both Congress and the BJP’s imperious, imperial court. Arun Jaitley is a loyalist and a lawyer, not even an economist but he and not Arun Shourie is the Finance Minister. Men who value ideas and beauty do not crave petty power or black money slush funds in a Swiss private bank. Raghu should have heeded the advice of Lord Tennyson and the lesson of the Light Brigade. Ours is not to reason why, ours is but to do and die. We need meek, timid, compliant yes men at the RBI who do not call oligarchs and banksters “crooked”, who do not brand the Netaji Crooks R Us Brigade “venal”, who do not evoke the memory of the Nuremberg Laws (strange, I will be in Nuremberg next week!) in New Delhi 2016. We need men who can bat and ball, hail Caesar on command, dutifully scream yes sir, no sir, three bags full sir (sirji, in Pakistan, in the court of King Assi Tussi!).


Modi should really appoint another Tamil to be governor of the RBI. Dr. Subramanian Swami would be an ideal Indian ambassador to Wall Street. Rekha would be even better, a lady of grace and beauty even greater than Swami’s. It does not matter who is the next governor of the RBI because now we know why they get the job.


My Indian friends tell me Dr. Rajan’s sacking in a storm in a teacup, that he was no jewel in India’s crown, that it is rude to expose Emperors who wear no loincloths. I passionately disagree. As an investor in emerging markets, I live and die by the Latin world credere – belief. Without credere, there is no credit. So Modi and Jaitley have gravely damaged India’s sovereign risk and raised the risk premium for inflation, G-Sec issuances and the rupee. Yet this is far less important than the BJP’s power of politics and patronage – the Congress was no different, only far sleazier. The next RBI governor will have to curry favour at the court of the BJP princes, not insist that India’s powerless be defined in the image of the powerful, as they have been for all these centuries. I hope to shake Raghuram Rajan’s hand for the second time in my life. Raghu, you are my hero. India will never forget you.


Gold is ideal safe haven beyond Brexit!

Monday, June 20th, 2016

By Matein Khalid


These are historic times for the global financial markets. The June FOMC left the overnight borrowing rates target unchanged but the Yellen Fed has also rolled back its expectations for future rate increases in 2016 and downgraded her implicit US growth and inflation forecast. The ten year US Tresury note yield has plummeted to a low of 1.56%, thanks to Brexit related safe haven flows now that the ten year German Bund yield is negative. The Bank of Japan also did nothing to reassure the markets with a “shock and awe” monetary ease, impotent to act on the eve of Brexit and the upper house Japanese Diet election. The dovish Fed, a continued negative 0.1% policy rate in Tokyo and a fall in Brexit crude to $46 meant the Japanese yen was poised for a sharp rise against the US dollar, Euro and Australia/Canada. This is exactly what happened as the yen surged to 104 against the dollar, 117.50 against the Euro and almost 78 against the Aussie dollar.


While gold futures traded as high as $1312 in Singapore after the Fed monetary conclave on Wednesday, spot bullion closed at $1284 in New York after the Dow Jones index made a 250 point snapback on Thursday. Gold is the obvious beneficiary of a dovish Fed, negative interest rates in Germany and Japan and the safe haven bid to hedge Brexit risk. While the Japan yen could also spike higher to 100 on Brexit, there is a constant risk of central bank intervention at current levels. This is not the case with gold or even silver, which I had recommended in the $15 level in this column and has now risen to $17.60 spot as I write. If Brexit happens, I have no doubt in my mind that we will see gold trade at $1400 an ounce in New York on June 23. If Britain does not vote to leave the EU, gold falls to pre-May payroll data or $1210-1220 on an immediate liquidation move. Yet this sell off should be aggressively accumulated, since the lower projections for Fed interest rate hikes makes gold an obvious winner asset class for 2016.


The World Bank has also slashed its expectations of global growth, Deutsche Bank shares have plunged 50% in 2016, below their Lehman Brothers lows in 2008 (wo is der black swan?), Venezuela is Latin America’s latest “failed state” thanks to Nicolas Maduro and the ghost of Commandante Chavez, the Kremlin and the US are on a collision course in Syria and Donald Trump is the presumptive Republican nominee as terrorist outrages hit Florida, Paris and Yorkshire. Notice that the Gold Miners index fund (symbol GDX) is up 84% in 2016. No typo, friends. I repeat the gold miners index is up 84% in 2016. This is the mother of all breakouts in the kingdom of Auric!


The FOMC policy U-turn also increases my bullishness on high yield carry currencies in certain (but definitely not all. Avoid the Nigerian naira and petro currencies like the plague!) emerging markets. The current Brexit risk off angst in the emerging markets can give some crucial money making carry ideas. I believe the Indian rupee would be an absolute must buy at 67 even if Dr. Rajan decides to return to his tenured professorship in South Chicago. There is a non-trivial risk of a US recession, a Chinese banking crisis or the failure of a major European bank. These are all reasons why gold and silver could be the best performing currencies of 2016. In any case, it is profitable to buy the Indian rupee against the Singapore dollar and Malaysian ringgit.


The sterling one month option volatility now exceeds 20, the level I remember in October 2008, when Gordon Brown’s UK Treasury bailed out RBS and Lloyds. In essence, the markets expect the pound to plummet to 1.25 – 1.28 if Britain votes to leave the EU on June 23. Fine. Sterling volatility is impossibly risky. So I would sell a 1.40 one month put as my Remain trade strategy idea! This could be the most exciting week to trade sterling since the Scottish referendum and even Black Wednesday 1992. This will be the week that will change global finance, possibly witness Britain’s biggest political decision in our lifetimes. Happy hunting, mates!