Europe

Europe edges closer to collapse

“What comes first? The global Brexit recession or world war three?” This was the tongue-in-cheek question fired at the British prime minister in a recent live TV interview. David Cameron has preached doom and gloom if Britain leaves the EU, but more and more Brits appear willing to take the risk. And it’s not just in Britain. Support for the EU is collapsing across the bloc. Markets don’t like it, except for gold.

David Cameron – who wants Britain to stay in the EU – was unimpressed by the question. The audience just laughed. Looking under pressure,  Cameron promptly accused his Sky News interlocutor of being “glib”. But the interviewer’s point was that campaigning in the British referendum on membership of the EU – by both sides – has been about fear.

According to the people campaigning to stay – the “Remain” campaign – an exit from the EU will lead to economic collapse, cuts to pensions and health spending, and more terrorism. Far worse than that – horror of horrors – house prices may fall! (Never mind that they’re in a bubble and unaffordable in vast swathes of the country.)

According to the people campaigning for an exit – the “Leave” campaign – if Britain doesn’t leave it will be overrun with immigrants, economically shackled to a low growth region, and run by increasingly anti-democratic elites in Brussels.

…Brits have to pick their preferred dystopia. Irrelevance and decline or continued subjugation to a foreign tyranny.

So, if the politicians are to be believed, Brits have to pick their preferred dystopia. Irrelevance and decline or continued subjugation to a foreign tyranny.

Both campaigns have been short on vision for why their way is better – meaning likely to improve the lives of average British people. But one thing has become clear in recent days. The momentum has swung behind the leavers.

More and more polls in recent days put the Leave campaign in front, with just nine days to go until voting. The European political and bureaucratic establishment is starting to panic. They don’t like it when ordinary people vote the “wrong” way.

Some people don’t trust the polls, as they’ve been misleading in the past. So they focus on betting odds instead. According to the bookies the probability of Britain leaving the EU is now 42%, up from the low 20s just three weeks ago. And it’s growing by the day.

Just today the most widely read newspaper in Britain, a tabloid called The Sun, came out strongly in favour of the leave campaign. “Be LEAVE in Britain” ran the front page headline, in its customary huge letters. Plenty of Union Jack flags added colour to the image, just in case there was any doubt.

If you’re not British you may be tempted to think “So what?” But the implications go far beyond British borders.

If you’re not British you may be tempted to think “So what?” But the implications go far beyond British borders.

Disaffection with the EU is on the rise across Europe, as shown in a recent and major survey by the Pew Research Centre. If this political and economic bloc of 508 million people disintegrates it could have huge implications for the economy and markets.

I believe the EU will fall apart over time, sooner or later and in one way or another. When it comes to investing, there will be winners and losers along the way, so it’s something that needs to be watched.

According to the Pew survey, the majority of people in Britain, Greece, France and Spain have an unfavourable opinion of the EU. And opinion in Germany and the Netherlands is only very slightly in favour of the EU. Greece may be small, but Germany, France and Britain are the three biggest economies in the EU, and Spain is no lightweight.

Views of the EU

Brexit-Views-of-the-EU

The biggest fear of the elites in Brussels is that a British vote to leave will embolden the eurosceptics in other countries. The whole political project could simply disintegrate within a few years.

The threats are starting to fly – to scare the ordinary British punter to vote to remain. If the country does choose to leave it would be no surprise to see efforts to punish the UK, even though that would be damaging to the rest of the EU trade. (The UK is a big net importer of EU goods.)

Due to this uncertainty the British pound sterling has been falling. It’s down 4% against both the US dollar and the euro in the past three weeks, which is a big move in currency markets. The FTSE 100 index of stocks is down 5.5% in the past five days…the Euro Stoxx 50 index is down 9% in the past two weeks…world commodity prices are sliding too.

Most markets don’t like uncertainty – and the outcome of this vote and its implications remain highly uncertain. After all, Britain is the world’s fifth largest economy.

Of course it could just be a convenient excuse for a bit of a reset. A knee jerk reaction to the big story of the day. But one market appears to be benefitting – gold.

Gold is trading at $1,285 per troy ounce at the time of writing. It dipped below $1,203 on 29th May, meaning it’s rallied 6.8% in a couple of weeks. Since the low of $1,054.68 an ounce on 3rd December 2015 gold is up nearly 22%. It looks like the bull market is still on, even if there could be a pull back in the short term after such a strong run.

In case you missed it, last week OfWealth published a special report on gold called “The best ways to invest in gold: the ultimate consumer good”. It gives you all the ins and outs of this eternal metal, what it’s used for, why to invest in it, and the best ways to go about it. If you haven’t downloaded it yet then click here (it’s free).

The British referendum on membership of the EU is heating up, and it may not go the way that the political and economic elites want it to. But, whatever happens, Europe is edging closer to collapse.

It’ll most likely be a slow process, punctuated by sudden crises of either the economic, financial or political kinds. But EU fragility is one of the good reasons that everyone should own some gold.

The lustrous lump is not just the ultimate consumer good, it’s also insurance against uncertainty – as I explain in the special report. Make sure you own some gold. Our special report shows you how.

Stay tuned OfWealthers,

Rob Marstrand

robmarstrand@ofwealth.com

Also, in case you missed it, you’ll see that “” is no more. Last week I revealed my real name. If you didn’t get the chance last week to read about who I am then you’ll find out more here.

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Rob is the founder of OfWealth, a service that aims to explain to private investors, in simple terms, how to maximise their investment success in world markets. Before that he spent 15 years working for investment bank UBS, the world’s largest wealth manager and stock trader with headquarters in Switzerland. During that time he was based in London, Zurich and Hong Kong and worked in many countries, especially throughout Asia. After that he was Chief Investment Strategist for the Bonner & Partners Family Office for four years, a project set up by Agora founder Bill Bonner that focuses on successful inter-generational wealth transfer and long term investment. Rob has lived in Buenos Aires, Argentina for the past eight years, which is the perfect place to learn about financial crises.