Talk Of ‘No Deal’ Brexit Rises As Divorce Negotiations Stall

As Brexit negotiations between Britain and the European Union stutter and stall, one question looms larger and larger: What if there is no deal?

It’s an increasingly plausible prospect that stirs fear in many U.K. politicians and businesses — and hope in the hearts of staunch Brexit supporters.

Divorce talks have limped through five rounds without a breakthrough, and Britain is due to leave the EU in less than 18 months, on March 29, 2019. When it does, thousands of laws, agreements and regulations covering everything from trade to crime-fighting to aviation will cease to apply. Unless a new deal is struck, the U.K. will crash out of the EU single market and trade with the bloc on World Trade Organization terms, which would mean tariffs on goods and uncertainty for services.

The OECD economic think-tank forecast this week that switching to WTO rules would cut U.K. growth by 1.5 percentage points in the first year, push down the already-devalued pound, deter investment and trigger a downgrade to Britain’s credit rating.

“Only fantasists and fanatics talk up no deal,” U.K. Labour Party Brexit spokesman Keir Starmer said Tuesday.

But committed euroskeptics like John Longworth of pro-Brexit lobby group Leave Means Leave believe such talk is merely defeatism.

“The U.K. has been far too weak in the negotiations, far too accommodating,” said Longworth, a former head of the British Chambers of Commerce.

“I think that the EU will string out the negotiations as long as they possibly can in order to extract the maximum of benefit for them. In which case the best possible option for the U.K. is to go to World Trade Organization rules from March 2019 — and declare it now.”

Both Britain and the EU downplay, though don’t rule out, the possibility of a no-deal Brexit. U.K. Brexit Secretary David Davis said this week that “we are straining every sinew” to reach an amicable divorce, followed by a new free trade deal.

A deal — at least on the divorce terms and a two-year transition period Britain is seeking — would have to be clinched months before the March 2019 deadline to give individual EU national parliaments time to ratify it.

The impact of failure could be profound. The flow of goods could be disrupted, imperiling thousands of jobs. Three million EU citizens living in Britain and a million Britons elsewhere in the bloc would be in limbo. British finance minister Philip Hammond has said it’s even conceivable air traffic will be grounds — though he insisted such an outcome is highly unlikely.

Even the milder forecasts predict major economic fallout. About half of Britain’s trade is with the EU, and research by economic think-tank the Resolution Foundation and the University of Sussex said a “no deal” Brexit would mean price increases for food, clothing and vehicles costing the average family 260 pounds ($342) a year, and could put hundreds of thousands of jobs at risk.

Longworth dismisses such gloomy forecasts. He believes Britain can thrive by rejecting the EU’s myriad economic regulations and becoming more like Singapore, with “a lower tax, lower regulation, lower tariff, more enterprise-friendly economy.”

Meanwhile, a battle between proponents of “hard” and “soft” Brexit is raging within the British government. Prime Minister Theresa May, weakened after losing her parliamentary majority in a June election, is trying to reconcile Cabinet ministers like Hammond who want compromise and conciliation to soften the impact of Brexit, and gung-ho leavers including Foreign Secretary Boris Johnson and Trade Secretary Liam Fox.

This frustrates EU officials, who wonder whether May has the authority to strike and deliver on a deal. European Parliament president Antonio Tajani said divisions within the British government are “not good for good work in the next months.”

Most economists and politicians believe it in the interests of both Britain and the EU to make a deal. Failure would hurt both sides, though Britain would suffer more because its economy is smaller.

But the longer talks drag on, the more likely failure becomes.

Leaders of EU nations meet in Brussels on Thursday and Friday, and are likely to say there has not been enough progress on divorce terms to begin discussing future trade relations and thetwo-year transition period Britain is seeking.

The main roadblock is money. The EU estimates Britain must pay something over 60 billion euros ($70 billion) to settle its financial commitments to the bloc. Britain thinks that is too much, and won’t commit to any figure until the EU agrees to move talks on to future relations.

Those hoping for a breakthrough are now looking to another EU summit in December.

Jonathan Portes, a professor of economics at Kings College London, said the impasse means there could be “a pause, a hiatus or indeed a complete breakdown in negotiations over the next couple of months.”

Portes doesn’t think such a breakdown would necessarily be final. He says that in the long run, a deal remains likely — though not certain.

“I still think that it is clearly in the interests of both sides to have a deal, and that there is not a majority in the U.K. Parliament or the country for a really destructive, chaotic ‘no deal,'” he said. “But politics is strange.”

Stock record ride ‘has reached epic proportions,’ Morgan Stanley says

Wall Street isn’t just in a bull market, it’s in an “epic” one.

That is according to Morgan Stanley, which on Tuesday wrote that the equity market rally “has reached epic proportions.”

“We say this not as hyperbole, but based on a quantitative perspective,” the investment bank explained. “Dispersions in valuations and growth rates are among the lowest in the last 40 years; stocks are at their most idiosyncratic since 2001; and equity hedge fund beta is at its highest since March 2008.”

Simply from the perspective of price moves, the “epicness” of recent trading activity should come as no surprise to investors. The Dow DJIA, +0.31% S&P 500SPX, +0.23% Nasdaq COMP, +0.11% and Russell 2000 RUT, +0.30%  have all hit repeated records this year alone, notching dozens of all-time highs. Those gains have been widespread and “perpetual,” to use Morgan Stanley’s description. Only two of the 11 primary S&P 500 sectors are in negative territory for the year, and for broader indexes, even mild pullbacks of 3% have basically been nonexistent for months. Volatility is near record lows. Beta refers to a measure of an assets tendency to fluctuate compared against a benchmark like the S&P 500.

Other regions have also reported strong gains: European equities are up more than 20% this year, as are emerging markets. Basically every country—as gauged by the most popular single-country exchange-traded funds—is positive on the year.

The move higher hasn’t been without controversy, given concerns over valuations, the pace of global economic growth, political uncertainty, and questions over the effect of the Federal Reserve’s effort to unwind its balance sheet and increase the cost of borrowing.

However, the relentless march higher has defied bears, who argue that the too-lofty valuations aren’t supported by fundamentals, and emboldened bulls.

“While investors have at times appeared reluctant to embrace the recent rally, there is evidence from last month that risk appetites are increasing,” Morgan Stanley wrote.

The investment bank noted that cyclical sectors, which are more closely correlated to the pace of economic growth, have been outperforming defensive ones, just as small-capitalization stocks have outperforming larger companies.

“Momentum is now strongly correlated with high beta globally, and the presence of this cohort of investors could produce continued risk-seeking behavior,” wrote the team of analysts, led by Brian Hayes, an equity strategist.

Warren Buffett: Investing VS Speculating

The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money.

But a pin lies in wait for every bubble.

And when the two eventually meet, a new wave of investors learns some very old lessons: First, many in Wall Street – a community in which quality control is not prized – will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest.

World Shares Mixed On NKorea Launch, Fed Meeting Next Week

World stocks were mixed Friday as investors shrugged off North Korea’s latest missile launch but remained wary of risk ahead of next week’s Fed meeting, which could provide fresh hints on interest rate policy.

KEEPING SCORE: European shares were uneven in early trading. Britain’s FTSE 100 shed 0.4 percent to 7,266.33 and Germany’s DAX lost 0.1 percent to 12,533.74, but France’s CAC 40 edged 0.1 percent higher to 5,226.01. Wall Street was poised to open lower. Dow futures edged down 0.1 percent to 22,161.00 and broader S&P 500 futures crept 0.1 percent lower to 2,491.20.

MISSILE TENSIONS: North Korea launched an intermediate-range missile that flew 3,700 kilometers (2,300 miles), setting off alarms as it flew over Japan to land in the Pacific Ocean. The launch was the latest sign of Pyongyang’s willingness to defy international opinion as it moves closer to building up a military arsenal targeting U.S. forces. Asian markets fell in early trading but some regained their footing later, in a sign the initial shock for investors quickly wore off.

TRADER TALK: “Another day, another missile from North Korea,” said Rob Carnell, ING’s head of Asia research. “It would be wrong to say that markets are not taking any notice, but the relatively muted responses of the Japanese yen and Korean won, and risk assets globally, suggest that a sense of fatigue on this belligerence is creeping in.”

FED WATCH: Investors were also digesting the first of a batch of U.S. economic data as they await the Fed’s next move on interest rates. Data released Thursday showed U.S. consumer prices rose in August at their fastest pace in seven months, a possible sign inflation is picking up pace. Industrial production and retail sales figures are due Friday, which could provide more hints on whether the Fed, which holds a scheduled two-day meeting wrapping up Wednesday, will remain on track to raise rates by the end of the year.

ASIA’S DAY: Japan’s benchmark Nikkei 225 index added 0.5 percent to 19,835.30 as the dollar spiked lower after the launch but then staged a quick recovery, making shares of exporters more attractive. South Korea’s Kospi recouped initial losses to end 0.4 percent higher to 2,386.07. Hong Kong’s Hang Seng edged up 0.1 percent to 27,807.59 while the Shanghai Composite in mainland China shed 0.5 percent to 3,353.62. Australia’s S&P/ASX 200 sank 0.8 percent to 5,695.00. Taiwan’s benchmark rose and Southeast Asian shares were mostly higher.

ENERGY: Oil fell from a seven-week high. Benchmark U.S. crude futures slipped 46 cents to $49.43 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 59 cents, or 1.2 percent, to settle at $49.89 a barrel Thursday, the highest closing price since the end of July. Brent crude, used to price international oils, shed 36 cents to $55.11 barrel in London.

CURRENCIES: The dollar slumped against the yen immediately after news of the launch but recovered quickly and rose to 110.67 yen, the highest level since mid-August. The euro strengthened to $1.1924 from $1.1919.

VanEck calls bitcoin a ‘fad,’ then files for bitcoin ETF

Money management firm VanEck is both skeptical of bitcoin and planning to sell a related investment product, illustrating a rising perception that the surge of interest in the digital currency creates a high-risk opportunity that may be too big to miss.

Last Thursday, Joe Foster, the portfolio manager and strategist for VanEck’s flagship International Investors Gold Fund (INIVX) said in a manager commentary piece for July that bitcoin will likely never “replicate or replace” gold’s place as a safe-haven asset due to fundamental differences between the two.

“Bitcoin and other digital currencies are a fad that has attracted the attention of programmers, speculators, and early adaptors,” Foster said. “It is my opinion that governments will not allow digital currencies to reach the critical mass needed to challenge the utility of fiat currencies” such as the U.S. dollar.

“At best, digital currencies may eventually occupy some middle ground as a niche product,” he said. “At worst, they become a failed experiment that ends in tears.”

One day later, VanEck filed with the U.S. Securities and Exchange Commission for a VanEck Vectors Bitcoin Strategy exchange-traded fund that would initially invest in bitcoin futures contracts and trade on the Nasdaq.

“Performance of the Fund is determined by the price‎ movement of the underlying digital asset (i.e., Bitcoin), the rate of change and the change in volatility,” the filing said.

The fund will be an actively managed ETF that seeks to “provide total return” without tracking the performance of a specific index. Derivatives like futures allow investors to bet on potential gains or losses in bitcoin’s price without buying the digital currency itself.

“Joe Foster makes a great case for gold relative to bitcoin as a currency and store of value,” VanEck told CNBC in an emailed statement. “VanEck believes that the technology underlying digital assets, known as distributed ledger technology, has tremendous potential to revolutionize finance and trade. Digital assets are an investable asset class in their own right and continue to be integrated into the broader economy.”

The SEC declined to comment on the filing.

Many digital currency enthusiasts have called bitcoin “digital gold” and predict that a small percentage of gold’s roughly $7.5 trillion market value will flow into bitcoin, sending the digital currency’s price many multiples higher. Bitcoin has more than quadrupled this year, hitting Monday a record high above $4,300 — triple the price of an ounce of gold.

Despite the many risks of the young digital currency world, analysts like Standpoint Research founder Ronnie Moas said cryptocurrencies’ rapid gains are not something he “could keep [his] hands off of.”

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Greed in the Bitcoin Community

When NIA suggested Bitcoin on May 30, 2016 at $530, the Bitcoin Price (x1MM) to Weekly Bitcoin Transactions Ratio was only 347 – below its long-term average of 449. Today, with Bitcoin up to a new record high of $3,335.48 the ratio is up to 2,284, which is 4 standard deviations above the long-term average.

Shockingly, Bitcoin’s fundamentals have been rapidly deteriorating in recent weeks – but with today’s Federal Reserve fueled hyperinflationary asset price environment – fundamentals no longer play any rolein determining the price of an asset.

Since May 27th, weekly Bitcoin transactions have plunged by -38.53% to 1.46 million, yet the price of Bitcoin has soared 65.61% to $3,335.48. The record high Bitcoin Price (x1MM) to Weekly Bitcoin Transactions Ratio from back on January 5, 2014 is 2,436. If Bitcoin is able to successfully reach the record high ratio from the peak of its last bubble, based on current weekly transactions of 1.46 million it would equal a Bitcoin price of $3,556.56.

You will never find a single post on social media of people talking about how much they love using Bitcoin. All you see are people who love Bitcoin for its price continuing to go up! They explain that Bitcoin is not a bubble because the supply can never rise to more than 21 million.

The Bitcoin block size was always supposed to be limited to 1MB, but last week’s fork will allow Bitcoin’s block size to increase in November to 2MB. If the initial block size limit was so easily increased, even though it was supposed to be permanent, there is no way to guarantee that Bitcoin’s artificial supply limit won’t be increased in the future – along with the elimination of Bitcoin halving.

Today, the artificial supply limit makes it much easier to promote Bitcoin and create the false perceptionthat its a safe/stable store of value. In the future as the Bitcoin inflation rate slowly declinesgreedy Bitcoin miners are likely to decide that it’s not profitable enough to mine Bitcoin for transaction fees alone. They will declare the artificial supply limit and halving to be a threat to Bitcoin’s survivability, just like the U.S. government declared the gold standard a threat to America’s economic stability.

Some people in the Bitcoin community wanted to raise the block size all the way to 8MB, and to appeaseboth sides – last week’s fork created a new ‘Bitcoin Cash’ cryptocurrency that got spun-off to all Bitcoinholders.

Fundamentally, the spin-off of Bitcoin Cash should have caused the price of Bitcoin to decline by an amount equal to the price of Bitcoin Cash. The fact that Bitcoin is in its mania phase and this didn’t happen – has caused Bitcoin enthusiasts to see it as magic and believe that cryptocurrencies offer a special power to create new assets worth billions of dollars out of thin air.

Due to incredibly huge greed in the Bitcoin community, NIA predicts that more “Bitcoin clones” will be unleashed in the months ahead – and there will be massive hype for the next Bitcoin spin-off… with everybody excited to receive more free money, printed out of thin air! Eventually, reality will hit people that even if the artificial supply limit of 21 million Bitcoin stays in effect, there’s nothing to stop greedy Bitcoin miners from spinning off 21 million Bitcoin clones of the same intrinsic value (zero).

If Bitcoin prices soar any higher, the Federal Reserve is going to begin viewing Bitcoin as a major threat to the U.S. banking system and Congress will feel compelled to make all cryptocurrencies illegal. Only the Fed’s primary dealers and their closest friends are supposed to profit from the Fed flooding the financial system with excess liquidity, but millennials are now copying the Federal Reserve and capitalizing on their destructive actionsCrytocurrencies are helping to expose America’s ponzi scheme economy, being kept afloat by the dying petrodollar system.

Stocks Move Higher, Sending Dow Industrials Closer To 22,000

U.S. stocks are rising Tuesday, sending the Dow Jones industrial average closer to 22,000 points. Banks are posting some of the biggest gains, and payment processors and other technology companies are also rising. Under Armour is tumbling after the athletic apparel company lowered its revenue projections and said it will cut jobs and expenses. Oil prices turned lower after a long rally.

KEEPING SCORE: The Standard & Poor’s 500 index rose 6 points, or 0.2 percent, to 2,476 as of 1:50 p.m. Eastern time. The Dow Jones industrial average climbed 86 points, or 0.4 percent, to 21,977. The Nasdaq composite added 12 points, or 0.2 percent, to 6,360. The Russell 2000 index of smaller-company stocks remained at 1,425.

GETTING PAID: Citigroup picked up 92 cents, or 1.3 percent, to $69.37 and Goldman Sachs added $2.11 to $227.44.

Among technology companies, payments processor Visa rose $1.35, or 1.4 percent, to $100.916. Mastercard, which processes debit and credit card payments, rose $1.85, or 1.4 percent, to $129.65.

Intel rose as its deal for Mobileye moved closer to completion following approval from regulators in South Korea. Mobileye makes software that processes information from cameras and other car sensors to decide where an autonomous car should steer, and Intel agreed to buy it for $15 billion in March. Intel gained 78 cents, or 2.2 percent, to $36.25 and Mobileye rose 17 cents to $63.47.

Xerox reported solid quarterly results and jumped $1.38, or 4.5 percent, to $32.05.

SMOOTH SEAS: Cruise line operator Royal Caribbean beat analysts’ forecasts and raised its estimates for the year. It climbed $4.43, or 3.9 percent, to $117.50 and competitor Carnival also advanced 71 cents, or 1.1 percent, to $67.49.

SPRINT SPRINGS: Sprint climbed Tuesday after it said it’s open to combining with another phone company or a cable company. CEO Marcelo Claure said Sprint can survive on its own, but it will be in a better position if it strikes the right deal. The fourth-larger U.S. wireless carrier also reported its first quarterly profit in three years as it cut cost and added wireless subscribers.

Sprint was on pace for its biggest gain of the year as it rose 81 cents, or 10.1 percent, to $8.79. Elsewhere, T-Mobile USA climbed $1.29, or 2.1 percent, to $62.95 and Verizon Communications gained 84 cents, or 1.7 percent, to $49.24.

POWERING DOWN: Utility company Scana continued to rise. On Monday the company said it plans to end construction of two nuclear reactors that customers have already paid billions to build. It will brief regulators Tuesday on its plans. Scana’s South Carolina Electric & Gas unit and state-owned Santee Cooper say they have already spent $10 billion on the project and that it could cost $20 billion to finish. The project has been shrouded in doubt since Westinghouse, the primary contractor, filed for bankruptcy protection earlier this year.

Scana rose $2.71, or 4.2 percent, to $67.08 following a 5 percent gain on Monday.

SLIMMING DOWN: Under Armour cut its annual revenue forecast as sharp discounts continue to affect its business in North America. The Baltimore company said it will eliminate 280 jobs and is aiming to reduce $110 million to $130 million in annual spending through a restructuring plan. Under Armour sank $1.71, or 8.6 percent, to $18.31, and it’s down by more than half over the last 12 months. Rival Nike added 50 cents to $59.55.

STUCK IN NEUTRAL: Engine maker Cummins reported a weaker-than-expected profit due to higher warranty costs, and its stock lost $11.14, or 6.6 percent, to $156.76. Power management company Eaton disclosed a smaller-than-expected profit and fell $5.38, or 6.9 percent, to $72.87.

On Monday Cummins and Eaton started a joint venture that will make automated transmissions for heavy-duty and medium-duty commercial vehicles. They announced that plan in April.

AUTO FAILS: General Motors and Ford declined as auto makers were expected to report their seventh consecutive month of lower sales. GM’s sales fell 15 percent in July and Ford’s decreased 7.5 percent. U.S. new vehicle sales reached a record of 17.55 million in 2016, and Ford’s U.S. sales chief Mark LaNeve said at their current pace, sales will be around 17 million this year.

GM fell $1.30, or 3.6 percent, to $34.67 and Ford declined 27 cents, or 2.4 percent, to $10.95.

ENERGY: Oil prices plunged after a six-day rally. U.S. crude shed $1.40, or 2.8 percent, to $48.77 a barrel in New York. Brent crude, the international standard, dropped $1.37, or 2.6 percent, to $51.3 a barrel in London.

BONDS: Bond prices moved higher. The yield on the 10-year Treasury note dipped to 2.26 percent from 2.30 percent.

METALS: Gold added $6 to $1,279.40 an ounce. Silver lost 2 cents to $16.76 an ounce. Copper dipped 1 cent to $2.88 a pound.

CURRENCIES: The dollar dipped to 110.21 yen from 110.24 yen. The euro slid to $1.1823 from $1.1831.

OVERSEAS: The DAX in Germany DAX rose 1.1 percent. Britain’s FTSE 100 and the French CAC 40 both rose 0.7 percent. Japan’s benchmark Nikkei 225 index added 0.3 percent while South Korea’s Kospi climbed 0.8 percent. In Hong Kong, the Hang Seng gained 0.8 percent.