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Posted by on Jun 27, 2016 in Market Insight

This Changes “Utterly” Everything

This Changes “Utterly” Everything

June 27, 2016

Dennis Gartman is editor and publisher of The Gartman Letter, and strategic advisor of the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN). He regularly contributes to AlphaBaskets and lends his institutional insight to educate advisors and investors about commodities and the forex markets, including about trading gold in different currency terms.

The panic is over but now the reality sets in as the world has to begin to try to understand just how truly serious and how tectonic plate-shifting was the British Referendum last week.  We are reminded of the comment by Zhou Enlai, Mao’s closest advisor and the Foreign Minister of the People’s Republic for a long period from the 60’s on into the 70’s, who said when asked his opinion of the importance and effects of the French Revolution that “It’s too early to tell.”  Zhou was absolutely right in making that statement for the great tidal shifts of history do indeed take hundreds of years.  We are only now really beginning to understand the importance and the effects of the American Revolution in 1776, for there is no doubt in our mind but that that Revolution had an effect upon British voters last week, and we shall not fully understand what tectonic plates have shifted, or how, following last week’s Referendum, for decades into the future.

All we are certain of is that the political tectonic plates have shifted. All we are certain of is that history has been changed and in the words of W.B.Yeats, “changed utterly.”  We are certain that the British people are to be congratulated for their bravery in thumbing their noses at the political elites whose eyes were cast toward Brussels when the British citizens had their eyes… and ears… cast toward London instead.

We are certain that in the shorter run… years instead of decades… that the likes of the French National Party, the Lega Nord, the UKIP, the Dutch Party for Freedom et al shall see their influences increased, while the French Socialists, the British Labor and Conservative Parties, the Christian Democrats all across Europe and most other supposedly “centrist” will see their influence and their powers diminished.

Some of those about to lose their influence in Brussels and in the various national capitals around Europe are acting rather like petulant children.  Former Italian Prime Minister Letta has said that perhaps it is right for the leaders on the Continent to demand a swift reappraisal of the situation and that England should be forced into acting swiftly on Article 50 of the Lisbon Treaty, apparently intent upon sending a message to others across Europe who might be tempted to follow the British lead out of the European door.  Ms. Lagarde, the IMF’s Director, has made it rather clear that she disapproves of what the British citizens have done.

Juncker, Hollande, Mr. Tusk of Poland… all men whose power has been diminished… are making and have made the most petulant comments regarding the need to keep the Euro-zone intact and who are looking down their noses at what the English citizens have wrought. They have even taken “shots” at the rather conciliatory comments made by Mr. Johnson, one of the leaders of the “Leave” movement and the gentleman most likely to become the next UK Prime Minister according to most polls (and hadn’t we better take those polls with some degree of disbelief given their inabilities in recent election in the UK?), who said that England would do well to take its time in pushing ahead with the requirements of Article 50. Petulant children do get cross, don’t they?

All of that said, the EUR now is doomed to failure. England’s leaving… and let’s remember that when all of the political smoke has cleared in several years, Scotland will have hoved off from the southern part of the island and that Northern Ireland shall be reunited with the Republic of Ireland, leaving “England” as a separate, finite, smaller but still enormously powerful country… and others shall follow her lead.  Holland will hold a referendum on precisely this same issue sometime in the next several years.  When Padania is created out of what are now the northern provinces of Italy, it may choose to do the same. The Catalonians may wish to remain part of the EU when they hove off from Spain itself, but will the Basques? And what of the Basques in southwestern France? Will they join with their fellow Basques in northern Spain to form a Basque nation, and will they chose to join the EU or will they not?

The point here is that what we have come to accept as the status quo in Europe has been torn wholly asunder. That which was, isn’t but that which shall be is wholly unknown. We are treading new ground; tread lightly.

There was and is someone or something still willingly selling gold on rallies, and that is evidenced by the fact that the open interest in gold rose a truly stunning 10% on Friday!  We cannot ever recall having seen or heard of the open interest in any commodity rising by double digits in a single trading session, but relying upon the reports from our friend, Mr. John Brimelow, that is precisely what has happened. On a day such as Friday, we would have expected a substantive sum of short covering to have taken place, along with a substantive sum of new buying in gold, perhaps sufficient to greatly offset one another. We could have imagined that the open interest might have risen 12%, but never would we have imagined that it rose as sharply as it did.  Hence, not only have the “specs” bought more gold, but the “commercials” and or the “Nefarious” have sold more and added to their short positions. This we find stunning and clearly the longs are in a much better position than are those who are short.


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