Europe’s Phoenix

4 min readMay 7, 2017

The European Union, like the mythical Phoenix, came into existence from the ashes of the two great wars. Had Europe not experienced the soul-crushing horrors of war, it would never have united, either socially or economically. But, like the rest of Humanity, Europeans’ memory of why they united, has been fading with time. Life is different now than it was decades ago, and the advantages of tearing down walls and banding together are no longer obvious to many citizens. This is especially true for rural Europe which may have taken the brunt of the economic dislocation brought-on by two decades of job destroying technological innovation.

The technology that is responsible for the job destruction, however, is not visible to the average citizen. The AI robots that have reduced the need for Human labor — that is what technology is designed to do — tend to be kept behind new factory gates and on silicon chips, not in the streets. What is visible in the streets is the “other”, and since the Human brain has been hard-wired over the course of tens-of-thousands of years to think in tribal terms, it can’t help itself when it has both a personal problem and the presence of individuals that are outside of the tribe. The migrant problem has unleashed some very basic (base?) xenophobic and nationalistic characteristics, that, ironically, are the very same characteristics that caused the old wars in the first place.

Brexit was little more than an anti-immigrant tantrum from the hinterlands. It might not have passed, had the vote been taken post the Trump election, like the Dutch vote,and now the French vote. Seeing what America is having to suffer through has made Europe step back from the edge. Watching a friend go through a “near-death” experience can often help you see your own situation with greater clarity. We think this is what has happened to Europe. The fascist extreme corner of the political room is looking very scary once again and the majority of Europeans are backing-away into the middle of the room.

If the French vote goes as it seems likely to, that is, Le Pen losing, then we think that the European stock market will grind higher and make new all-time highs much sooner than most people think. There is a lot of money that has been kept on the sidelines (witness the negative rate on the German Bund) because of the uncertainty surrounding the very existence of the EU. Now that it no-longer is an existential question, Europe will be ripe for investment; a sort of “Phoenix 2.0” , but without the fire.

Equities

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The 1999–2000 trading pattern continues to be recreated in today’s trading (two charts below).

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The long-term technical averages point to a continuing S&P 500 rally (chart below).

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Gold

Gold moved significantly lower this week as was predicted by the USD/JPY, rates, and the Pring inflation index. The long-term situation is illustrated in the chart below.

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The dollar has been weak which usually acts to support gold (negative correlation), but this time around, gold has demonstrated a positive correlation with the weak dollar which should be temporary. The big-picture shows the similarity between today and the 1999–2001 gold-dollar relationship (chart below).

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The USD/JPY has bounced off of the 50% Fibonacci retrace level which has driven gold down (chart below).

Inflation tends to correlate positively with the gold price, but for the last several months gold has appreciated in price while inflation has worked lower (negative correlation). This past week, the correlation has started turning back toward the mean (see the zone-thumbnail in the chart below).