Please pardon yet another Brexit article, which served as the opening segment to this week’s Notes From the Rabbit Hole report, NFTRH 401.  From here on we focus on the task at hand, which is how to continue to capitalize on global macro gyrations.  Brexit and its aftermath are likely to signal some changes before long, as relief arrives, risk ‘off’ takes a back seat for a while and an inflationary phase brews slowly but surely beneath the surface.


Britain left the EU, risk assets tanked and safe haven items got bid, big time. To the upside were Treasury Bonds, USD, Yen, gold and silver. To the downside were stocks, commodities and other things positively correlated to economies. So now the question is, did the world as we knew it end on Friday (figuratively at least)?

The answer is no, it did not. The financial world as we (or I, anyway) knew it was a mess before the vote and it is a mess after the vote. Central monetary authorities still set artificial rates of interest, purposely manipulating and distorting price signals throughout economies and financial systems. Britain simply voted for autonomy its own manipulation process.

As for the gold bug community, it appears to be a strange combination of triumphant among some perma pom poms and apprehensive or cautious among a few others who usually want you to be bullish. I think Brexit/Bremain had everyone on tenterhooks and many were caught off sides or at least, not positioned on the result.

Gold fundamentals are bullish (but incomplete) and the miners’ fundamentals improved quite a bit over the last couple of weeks. But this could be a mini blow off. USD is still bearish vs. Yen however, and the Silver-Gold ratio is still fairly constructive. It is key.

While the macro backdrop got a big and negative jolt last week we can still gauge the prospects of an ‘inflation trade’ out ahead. As noted at the site on Friday morning, global policy makers stand ready to battle the (natural) forces of illiquidity and risk ‘off’… G7 (and Fed) Right on Cue.

Headlines from


Before the market even opened the Fed was micro managing. But Janet Yellen says that the Fed does not manage the stock market. That’s a good one. The wording gets a little cute in implying that stress in the financial (funding) markets “could have adverse implications for the US economy”. This is a dead give away about the financialized US and global economy showing how they will always try to protect financial markets.

Maybe I am wrong, but what I see is gold leading the way to a macro backdrop that could shift inflationary, now that US policy makers are shifting toward the perma-Dove stances of their global cohorts. Yet, beneath the surface we have evidence that the US economy will improve (the Semi Equipment cycle I have been beating you over the head with).

If this were to happen and risk goes back ‘on’ and the Fed realizes the inflation genie is getting out of the bottle, gold could get hammered as the market starts to expect a rate hike regime again. Maybe it would be a small economic ‘false dawn’ but what ever it would be, it would likely be negative for gold for a while. But I have stated that NFTRH will not be gold-obsessive, so let’s move on.

Bottom Line

The summary of the above is that Markets adjusted to another chink in the armor of centralized global monetary authority. Being the (in some cases) intellectual (in most cases) dullards I believe they are, the response was predictable… ‘we stand ready to defend financial markets and economies by providing liquidity, blah blah blah…’

Confidence has dropped and that is a bedrock case for the view of the Macrocosm that we began discussing last July. When confidence is dropping only gold and other risk ‘off’ liquidity assets will rise (silver is funny right now, as it acts risk ‘off’ but in its relationship to gold, is central to any prospect of a coming inflationary phase).

In the short-term we can be open to the prospect that Friday could have been the kick off to a bearish summer. But we will check the charts below and see what the extent of the technical damage may or may not be.

In the longer-term, think about levers. As in the Fed now has another inflationary lever it can pull as the average market participant is flat out risk ‘off’, considering the Brexit implications along with recent Payrolls data. These events may one day be looked back upon as having signaled a mini blow off in global deflation expectations and another low in inflation expectations in the US. Several weeks ago we speculated about whether a short-term top in inflation expectations might then see a decline to form a right side shoulder on a bottoming pattern. That speculation is on track as of today. Is all the anti-inflationary news baked in now?


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