It’s official – the market has clearly gone insane.
As you likely are well aware of, this week is “Brexit week,” with the vote to remain a part of or leave the European Union taking place for UK voters on Thursday.
Well, last week’s events have caused a slight change in the polls, and that slight change has apparently caused a huge change for investors. Here’s why the current overreaction could end up with you losing out on a big chunk of your retirement savings…
Even if you don’t gamble yourself, movies clearly portray the dangers of the practice. And although it’s normally reserved for casinos, gambling is making an impactful appearance on Wall Street this week.
You see, after polls started last week with the Brexit vote holding a slight lead, a turnaround after the murder of British lawmaker Jo Cox moved the meter in slight favor of the Bremain vote, or vote to stay a part of the EU.
That tiny change, which is still almost 50/50 at this point, had markets and the British pound flying to start this week!
Amazing, isn’t it? A gigantic bet based on virtually even odds…
But it’s not just about the dollars being moved around to start the week. This overreaction could be the fuel being poured in the fire pit, and the vote still hanging in the balance will be the flame.
It’s all about expectations…
Stick with me – if the Federal Reserve has taught us anything, it’s the power that expectations can have on just about anything.
Janet Yellen, chairwoman of the Fed, has become a master of manipulating expectations so that the actual result has a greater impact. Several times she talked up rate hikes like they were about to happen, but then kept rates the same. In doing so, the expectation of a hike gave more power to the eventual reality that rates were going nowhere.
To this point, expectations have largely worked in favor of the market in recent months. But the Brexit situation appears to be doing just the opposite.
There are 2 possible outcomes for the vote this week:
1. The vote to remain wins, and the UK does NOT leave the EU.
2. The vote to leave wins, and the UK does in fact leave the EU.
Right now, even though it’s a tiny margin, outcome #1 looks to be more likely. But it’s far, far from set in stone.
So let’s say that outcome #2 actually takes place. What happens then?
It’s largely accepted that a Brexit victory would do some damage to the market. But as we know from expectations, the current overreaction to a slight change in polls could magnify that damage.
All the pumping up from early this week could be doing nothing more than making the market more and more vulnerable to a “surprise” vote.
And if that happens, an already unsteady market may have finally taken its last breath before becoming the bear it looks so ready to be.
In the process, everyone with retirement savings being managed by some fund manager is at risk for losing BIG amounts. Think 2008.
That’s why I often stress the importance of knowing what’s happening for yourself, and if you can, managing your own money. You care about your money, your family, and your retirement more than anyone else.
My greatest fear this week is that some members of Wall Street Informer will be victims of this overreaction. Hopefully this article goes a long way in preparing for what could be…
