Equites have retraced the majority of their Brexit loss. In my view the swift decline and subsequent recovery is the result of algorithmic trading, trading based upon the cross correlation of weighted variables. It is not investing. As noted many times algorithmic trading now accounts for about 85% of total volume according to a SEC report.
It is widely accepted the EU does not create a product but rather transfers wealth in an attempt to create certainty. Hypothetically certainty lowers the possibility of conflict and stress given that the masses have great access to the necessities of life. However certainty does not create opportunity, increase productivity and growth, killing the entrepreneurial spirit—aka risk taking—via bureaucratic fiat.
Government is the least efficient use and distributor of productive capacity given the lack of a profit motive. It is the ultimate OPM (other people’s monies) operation.
Highly bureaucratic societies are less free with a considerable lower growth rate. The ultimate bureaucratic societies that offer the greatest hypothetical certainty are North Korea, Cuba and Venezuela.
Earlier in the week I stated Brexit was a celebration/victory of democracy and freedom. Yes freedom does create uncertainty but it also permits advancement.
Can I remotely suggest the above rationale—greater freedom that will increase the probability of growth–is a reason for the quick equity recovery? Or should I continue to blame the volatility upon HFTs?
Commenting upon market action, equities rallied on speculation that central bankers will counter the impact of Brexit, an advance led by oil stocks. Crude rallied again yesterday on a greater than expected inventory draw, record gasoline demand and accelerating production declines in the US to 8.62 million barrels a day, considerably lower than the 9.1 million barrels a day forecasted three months ago.
Last night the foreign markets were up. London was up 0.07%, Paris up 0.46% and Frankfurt down 0.01%. China was up 1.65%, Japan up 0.06% and Hang Sang up 1.75%.
The Dow should open quietly higher. The 10-year is flat at a 1.50% yield.
