New polls over the weekend suggested the “Remain” camp gained ground on the “Leave” movement in the U.K. One Survation survey put Remain ahead 45% to 42%.
A separate online poll by YouGov came in at 44%-43% in favor of Remain. Still another poll was a dead heat at 44%-44%, with the vote looming on Thursday.
Since the results were slightly more favorable for “Remain” than those we saw a week earlier, the British pound soared the most in a single day since December 2008. That, in turn, caused risky assets to jump in value all around the world.
|The British pound benefited from the gains the “Remain” side made in weekend opinion polls.|
Why the swing in momentum? It may stem from increased fears of the economic impact of a Brexit on the U.K. But another tragic reason could be the murder of a pro-Remain politician in the U.K., Jo Cox.
She was killed June 16, and the temporary suspension of the Brexit campaign that followed could have swung some voters into the “Remain” camp. The alleged murderer may also have been motivated by anti-immigrant, anti-Remain rage, something that could have reduced pro-Leave leanings in some voters.
So will the momentum last? If the U.K. population votes to stay in the European Union, will that set the stage for a rally to new highs?
I’m skeptical. To me, there are bigger issues for the markets beyond this Thursday’s vote. The proliferation of toxic NIRP/ZIRP policies around the world. The rising risk of recession here in the U.S. The longest negative stretch for corporate earnings since the 2007-2009 credit crisis. The unraveling of the “Everything Bubble,” with increasing problems in commercial real estate being the latest manifestation of the trend.
|“I’m going to continue to urge caution when it comes to investing.”|
Or in plain English, the unseen hand … the turn in the credit cycle that began last summer … is still steering the capital markets, Brexit or no Brexit. So unless and until that trend reverses – and there’s no reason for me to expect that anytime soon – I’m going to continue to urge caution, heightened vigilance, and conservatism when it comes to investing.
Now, I’d love to hear your thoughts. Do you think Brexit is THE major issue for stocks, and if it’s solved, we’re off to the races? Or do you think stocks face other, more significant challenges? How do you think the vote will go on Thursday, and how (if at all) are you adjusting your portfolio in advance of it? Let me hear about it in the comment section below.
Late last week, I wrote about commercial real estate and some of the trends I’m seeing in my neck of the woods. Several of you offered your own observations in response.
Reader Books said: “In our Midwest neighborhood, houses are selling within two weeks. Prices are rising very fast. As for commercial, lots of ‘For Rent’ signs up and down the major roads.”
Reader Steve S. added: “I have never in my life seen so many ‘For lease’ signs in CRE here in southern California. I am 61. Some popular spots are still empty going on a year now. My take is there are not enough people left with extra spending money anymore, and new businesses are just not risking it.”
Reader Thomas said: “It’s all about watching the scales. Oversupply means under-demand. In CRE transactions, an oversupply is an indicator that fewer business owners are entering the market to roll out their businesses. That is a good independent consumer confidence indicator. Not only that, but empty properties do not generate cash flow. So soon we will have defaults on mortgages and foreclosures. The downward spiral has begun!”
Reader F151 highlighted changes in the financing for commercial real estate, saying: “I work around the edges of the CRE lending market. Yes, the lenders are getting very tough. Even the good credit borrowers are being asked to put up with ridiculous requirements.”
Finally, Reader Tony said: “I’ve been in real estate for over 33 years in Silicon Valley and have warned buyers and sellers that this market will soon turn for the worst. Lately, we are seeing increased inventory and properties staying on the market longer. Hardly much ‘cash’ buying and overbidding like we have experienced over the past two-plus years. There really are no ‘first time’ buyers to push the next tier up.”
Meanwhile, on the subject of central bank policy, Reader Jacob offered this unconventional take on the impact of NIRP/ZIRP:
“My wife and I were discussing the Fed’s inaction and the thought came up in conversation, ‘What if the link between interest rates and inflation is there, but causality is reversed?’ The usual understanding is that interest rates rise when inflation rises in order to compensate the saver for the erosion in purchasing power, and vice versa. But what if high interest rates put more money in people’s pockets so they can afford to spend more and that money injected into the system chases goods that then go up in price?
“The reverse is also true. The Fed is widely acknowledged to be hurting people who live on fixed incomes by keeping rates low. Let’s face it, as our population grows older, we have significantly more people who are retired and living off their savings. With rates this low, they can barely afford the necessities. But if we raised rates, they would have spare cash to spend and that would create demand and help avoid the deflationary downdraft that technology is injecting into the economy.
“Therefore, is the Fed’s policy actually exacerbating deflation rather than helping create inflation?”
Thanks for sharing what you’re seeing locally on the real estate front. I’m keeping a close eye on this trend, especially because so many investors have turned to REITs for income in this low-rate world. My concern is that rising vacancies, slumping rent growth, and oversupply in subsectors like multifamily, retail, and office will pinch cash flow, and result in future dividend cuts/stock price declines.
Anything else you want to add about commercial real estate? Ultra-low interest rates? Other topics I haven’t covered here? Then hit up the comment section and weigh in when you have a minute.
Health insurance giants Anthem (ANTM) and Cigna (CI) want to merge in a $48 billion transaction. But like many other recent deals, this one could face stiff antitrust obstacles, according to the Wall Street Journal. The companies expect to hear whether the government will fight the deal sometime next month.
Conditions in Venezuela continue to deteriorate, with food riots and looting spreading as the country’s economy withers. Crippling inflation and low oil prices have drained currency reserves and made it difficult for the country to import the food it needs.
The Cleveland Cavaliers came back from a series deficit against the Golden State Warriors to win the NBA championship in Game 7 yesterday. Cavs star LeBron James earned the MVP award, and brought the city its first major sports championship since 1964.
What do you think about increased government interference in the M&A world – is it a good or bad thing for companies and the stock market? Will Venezuela’s descent into chaos have broader geopolitical repercussions? Any thoughts on the NBA finals, the ongoing soccer tournaments here in the U.S. and Europe, or other sporting events going on? Take a break from your day to comment on these or other events when you get a chance.
Until next time,