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Market Lab Report - Premarket Pulse 6/27/16

Market averages tanked on the surprising Brexit news that the UK will leave the EU. It just goes to show that bookies, polls, and other odds makers across the board were unilaterally wrong even though the UK remaining in the EU seemed far more likely. This sets up central banks to further reduce rates as they met over the weekend to discuss a contingency of measures. Indeed, the easy money train looks as if it is prepping for full steam ahead with all turbos engaged, and just when you thought it couldn't go any faster.

That said, there could be forced selling as margin calls are met which could take markets down further, so expect sharply higher levels of volatility this week.

Futures markets now say the Federal Reserve won’t boost U.S. interest rates until 2018. Only recently, Fed futures put the odds of a hike at just over 50% by December. Now, it's putting the odds of a rate CUT at 30% by the end of the year. In addition, the Bank of England is expected to cut rates from 0.5% to 0%, and the ECB has signaled it will step in to increase liquidity if necessary.

Analysts believe Brexit is good for Britain, not just for economic reasons but also because it may help the UK avoid Washington's wars as the wars are dictated by Washington, via Brussels, and not by the British people. We know that the US pressured the UK to remain via numerous fear tactics with no basis in fact. But it's not over yet as the US often gets what it wants. Expect much pressure on the UK in the coming months to prevent Parliament from approving the vote. Parliament is comprised largely of MPs who prefer the UK remain in the EU. And even if Parliament approves the vote, expect heavy pressure to effect an agreement that will benefit the UK and ultimately the US. Rest assured, the Federal Reserve will do whatever it takes to prevent the market from being undone though they are running out of time and running out of road in reference to the can that's been kicked since 2009.

Here is an eye-opening piece of note: http://www.paulcraigroberts.org/2016/06/24/despite-the-vote-the-odds-are-against-britain-leaving-the-eu-paul-craig-roberts/

That said, five more countries now want to hold referendums to exit the EU – France, the Netherlands, Italy, Austria, Finland and Hungary.

For any who missed it, we wrote in Friday's VVM/MDM update:

The Bank of England will act to aid bank liquidity which includes cutting rates further. Of course, we can expect coordinated action on behalf of central banks as they move lockstep with global easy money policies pushing rates further into the red, and pushing the world closer to potential collapse.

That said, the EU realizes they need the UK, and probably wish to prevent any further economic fallout. So while negotiations will be intense, the UK is likely to remain a member of the European Economic Area and essentially keep access to the European common market, similar to the arrangement the EU has with Norway.

That said, the EU's days are numbered. Other countries within the EU may hold referendums of their own as a domino effect may occur in the next year or two. This is clear sign a cleansing process of serious magnitude has begun as this is by far no isolated event. The sharp acceleration of civil unrest across numerous countries is being seen and felt via news blogs and other alternative media sources despite attempts to suppress the news. The internet indeed has been a great equalizer in bringing truth to those who wish to do their own due diligence to separate the kernels of truth from the manipulative lies put forth by big media, big business, and big government.

Expect elevated levels of volatility at least over the next 12-24 months as a result of the fast diminishing confidence in our governments. This could be potentially nicely profitable for our market timing models if history is any guide as 2000-2002, 2008, 2010 (flash crash), and 2011 post S&P downgrade of US bonds represent the most volatile periods since 2000 as well as the most profitable in terms of timing the market. Of course, always keep in mind that past results can never guarantee future outcomes.

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