Brexit: Time to Turn Bearish?

06/09/2016 9:09 am EST

Focus: STRATEGIES

Michael Berger

President & Founder, Technical420.com

The recent rally in the stock market seems to have stalled and we expect to see weakness in the near term as a number of important economic developments can significantly impact the market; Michael Berger, Associate Editor of MoneyShow.com highlights gold, gold mining, as well as volatility funds he would buy.

Although there is no way to predict if the markets will rally or sell-off after the United Kingdom’s vote on its membership in the European Union on June 23rd, we do expect the markets to overreact to the decision.

The overreaction will not be on account of the outcome of the referendum, but more a result of the hype the media has pumped into this event.

The United Kingdom contributes about $27 billion to the yearly income of America’s five largest investment banks. As a percentage of their total European Union revenue, the United Kingdom is much more important to US firms than any other European country.

JP Morgan Sounds Alarm

Jamie Dimon started to stir the pot yesterday after he said that he has 8 billion reasons why the United Kingdom should not leave the European Union.

According to data from Standard & Poor's, JPMorgan (JPM) generates approximately $8 billion in annual income off of the United Kingdom.

This amount is significantly larger than the $92 million made off of Germany and the $42 million made off of France.

Hedging Investments

The biggest beneficiary of the upcoming referendum so far has been the markets, as it has reduced the likelihood of a June or July interest rate hike by the Fed.

According to a person familiar with the matter, billionaire investor George Soros, recently made a series of large, bearish investments. Soros has also increased the amount of money he has invested in gold and gold mining stocks.

The rally in the stock market, coupled with recent trading activity by Soros has caused us to become more bearish on the market in the near-term as we are increasingly concerned about the outlook for the global economy.

Where is the Value?

We continue to see value in owning shares of gold-related funds and shares of gold mining companies as we anticipate weakness in various markets over the next twelve months. Some of the stocks and funds we would take a look at are:

  • SPDR Gold Trust (GLD)
  • Barrick Gold Corporation (ABX)
  • NovaGold Resources Inc. (NG)

Another way we would recommend protecting your portfolio is through a series of investments levered to volatility. Some of the funds we see value in include:

  • iPath S&P 500 VIX ST Futures ETN (VXX)
  • ProShares Ultra VIX Short-Term Futures (UVXY)
  • ProShares UltraPro Short QQQ (SQQQ)

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