Week in brief: July 1

July 4, 2016

As the sun set across the U.S. last Thursday, the world anticipated that Great Britain would vote to remain in the European Union. By midnight, such conjecture would be proven wrong. As global media outlets began to report that the Brits had voted to leave the E.U. So beginning the process to end the U.K.'s 30-year tenure as one of Europe's favored sons.
Hitherto, markets had broadly run up in tandem. Anticipating a different result than that which was eventually received Friday morning. When such an outcome failed to arrive? Global markets plummeted. With the S&P 500 dropping 3.60 percent. Followed by a similar plunge on Monday. As the S&P 500 plunged another two percent.
Western media speculation posited that Brexit would spell big trouble. That Brits did not know the extent of the Trojan Horse they'd invited in. That the global economy, and the markets that track them, had been placed in a hand basket headed for hell.
And then? Au contraire mon media frère.
As if to say, "Silence fools, for you know not of what you speak," the market proceeded to rally the rest of the week. Were the market gods applauding the Brits in their decision to leave a union that had failed them? Telling Brussels' European Overlords to cool their jets? That they'd overplayed their hands? Only time will tell.
As British voters provided a wholesale repudiation of their European overlords, the U.S. Social Security Administration announced that Social Security financing projections had worsened. Leaving coffers exhausted a full two years earlier than prior projections, as D-Day becomes 2028.
Brexit arose as voters expressed outrage over the overreach and meddling of Brussels' bureaucrats. Likewise, American voters have propelled populist candidates like Trump and Sanders into the limelight in reaction to frustration over the overreach and consolidation of state and local powers at the national level.
Today, many political leaders continue to promise more assistance to more special interest groups even while the nation's financing runs dry. Social Security has become a prime example. And if politicians cannot mount a bipartisan compromise solution quickly, the situation threatens to devolve into a crisis. The longer both parties delay, the more difficult a solution becomes. Yet, neither side appears to have the will to directly tackle the problem. Simply preferring to lob out vacuous allusions to free college tuition, increased healthcare coverage, and a litany of other prospective entitlements the nation cannot afford.
Aristotle said that the aim of the wise is not to secure pleasure, but to avoid pain. Please God may there be a few wise men left in that political swamp, D.C. Lest the nation's unsuspecting children find themselves, at some future point, careening towards an unavoidable world of hurt.
A quick comment on recent polls. Which readers who think the U.S. elections matter to the economy/markets, should note.
On Wednesday there was a "shock" poll in which Clinton-Trump were in a dead heat. On the prior Monday, a variety of polls showed Clinton ahead by 4 to 12 points. But when looking closely at who is being polled, it seems that (for instance in the Washington Post poll) there were more than 50 percent of respondents who were Democrats, 36% were Republicans and the rest were independents.
Not sure how a pollster could think that is a representative sample. The only thing I can think of is they believe that is the current mix of actual likely voters, which seem highly unlikely given the size of Trumps crowds.
Following the Brexit drop, markets spent the rest of this week elevating. There were no special catalysts besides a ramp-up in commentary that the Brexit decision might end up looking more like a negotiating tactic than policy. Rather than a full-blown exit from the EU, the vote might precipitate a change in the membership terms, such as a change in immigration rules.
Markets rising? Post Brexit? What gives?
Perhaps in the end, markets were simply applauding that someone had the temerity to stand up to endless bureaucratic overreach and simply say, "enough."
Weekly Results
The major indices finished down last week. The DJIA gained 3.15%, S&P 500 added 3.22%, NASDAQ climbed 3.28%. Russell small cap rose 2.59%, 10-year Treasury Bond yield rose 11 basis points to 1.45%. Gold finished up $25.66 per ounce, or 1.95%.

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