Nicholas Colas: If You're Crying, You Should Be Buying (Audio)

point three percent. Stocks are tumbling the most since January, joining US sell off in global risk assets on speculation that the UK decision to leave the EU will hamper worldwide growth. Down Industrials down five hundred sixty five points now a dropped there of three point one percent. They have been down as many as six hundred thirty points.

Nestack down a hundred and ninety three points to dropped there of three point nine percent, the tenure yield one point five seven percent, Gold surging sixty dollars, the ounce the thirteen twenty three an advanced there of four point eight percent and crewed down four point seven sixty seven barrel. I'm Charlie Pellett. That's a bloom Bread business flash. Thank you very much. Charlie Pellett. It is time now for the e t F report. Let's go to Bloomberg's Catherine Cowdery.

The gold rushes on after the UK voted to withdraw from the European Union. Gold has rallied the most since the height of the two thousand and eight global financial crisis, up as much as eight point one percent today. This is reflected in the e t F industry. GLD, the spider gold chairs has been rallying and it's traded more than three billion dollars worth of shares today, about four

times it's daily average. Bloomberg Intelligence analyst Eric Valtuna says it's been a good year for g l D. G l D is now up to about eleven billion influence. That's double any other e t F on the year. It's just the gold kind of year it has been from day one, and I suit with the volume today and the performance, I think we see another two billion into gold in the next week. Given the trading volume today,

so we're talking about thirteen billion flows. That's about a thirty percent increase in the size of g l D. In addition to g l D, other e t s have been gaining, including the iPath SP short term futures e t N or v x X. It's been up more than and the I shares twenty plus. Here Treasury bond e t F taker t l T is also gaining up as much as three point three. That's your Bloomberg ETF report. I'm Katherine Cowdery. This is taking Stock

with Kathleen Hayes and Pin Fox on Bloomberg Radio. Less than twenty four hours have passed since this historic vote, since the tally came in a vote to leave the European Union. Despite many polls that showed how close this vote was, seems like many investors around the world, and a lot of bookies for that matter, was still betting that the UK would vote to stay. Now everyone continues to sort this out. The the earthquake has happened. What

is the aftermath? Nicholas is here, chief market strategist at converge X. It's a global oak rich company, bakes right here in New York and he's been looking at Brexit, it flows at et S and a whole lot more for us. Nick, welcome and thank you for coming into studio with us. Thank you so your immediate reaction to this. Like everybody else, it's a very big wow. It was

now what was expected. And as the votes came in last night, I think we're all glued to the TV until one or two in the morning and our little groggy this morning, and so it's still hard to believe it's happened, but it has. Alright, well it's happened, so now what. So now you know you have to revert to some basic rules in order to trade this market and make some money. Rule number one of a blow up, as you never buy the first day of a blow up. There's a three day rule in trading, and it's there

for a reason. You don't buy the first day and you don't buy new lows, and you're seeing some of both in the current markets. So at this point, and this is totally logically what we're expecting through the Tuesday council meeting with the EU, you have to wait and see what the second, third, fourth, and fifth, fifth feet

are to fall before you can factor things. And that's why you're not seeing a lot of incremental volume today on top of this big surprise and the Russell rebalance that we still have to go through the clothes with. So traders are understanding that and they're waiting to see what happens next. I'm so glad how you say that, because that's what strikes me. There's a meteor reaction. And then seems to me, you say, and I've asked. I asked Kit Jukes this morning for societation and roll or

actually this afternoon, would you buy sterling here? He said, well, not yet. It's not crazy to ask that question. And we just just discussed it with another guest. But um, as you sorted out, are you what what about flows? Right now? You said, so far volume is low. Do we wait to see over the weekend in Monday? Who you know sticks their toe into the water first? In which direction they stick it? Absolutely, Because if you look at say et F flows a year to date, the

two major trends. The first obviously is gold. Between g l D and i AU. They own more gold in their vaults than all but seven countries around the world. That's amazing, over a thousand metric tons. And it's because of the fifteen billion dollars of inflows year to date. So that's that's the easy one to call out. The harder one is, and I think it will be that investors go back into US defuities before either developed economy Europe, Asia or emerging economies, and you've seen that in the

flows as well. Over the last month, U S E t F s US Equity E t F saw seventeen billion dollars of inflows, even even as equities from around the world we're still seeing outflows. That trend I think continues. So look for the SMP to bottom first and then other markets, even though obviously the volatility is in other markets to begin with. Alright, So Nicholas, let's say that we don't get any clarity and we keep using that word uncertainty from now until we're certain, which will be never.

Is there an asset class that will benefit in addition to gold from this uncertainty. Well, again, the easy one to call out is fixed income bonds, especially if you look at expectations for interest rate moves by the Fed. They've collapsed today and for the first time, I think, at least in the last couple of years, you're seeing handicapping on a rate cut. They're small so far, five to seven percent according to FED fronts futures, but you

are seeing some speculation to Fed us to cut. So fixed income is the logical next up, the next up after that again US equities, particularly large cap US equities, because look at the spread between SMP yields two point one and a ten year now struggling to hold one and a half percent, which is going to do better over the next ten years, I think is still going

to be the SMP. So it's in that order. It's okay, goal is the easy one, then fixed incomes pretty easy, and then US stocks bottom after that, and then the rest of the world begins to catch up. This is I'm glad. Well, it's interesting, cause that's what I've been asking myself all morning, all day, you know, because it's one of two things are rices three things could happen, but still everybody could have like, oh my gosh, the

world is ending. And if you talk to people who are who are British or like our our guests, who's part of the EU Parliament, who's Irish, there there's not They're not just looking at things financially. There's sort of an emotional shock, right, But when you get past that, when you have a big drop in something, you say, you know, maybe it's overdone, Maybe people got out of positions, maybe they went into it. So badly right that they

had to do some selling. Now you're back to even maybe, And then you say to me, sing seems still seems to me it's logical to say, what's a buy here? Yeah, if you look at say, well, look at what our customers were doing on our desk all week. They were positioning for a remain vote, and there was a lot of buying going into Friday's vote. Obviously Thursday's vote, and obviously that didn't work out. So a bit of today's action is just the unwind of those bets that didn't

work out. Uh. And then in order of what's a look at and say, again, the US, by virtue of our still continued reasonable growth, reasonable profit margins, good cash flow from US corporations have the best shot of bottoming first, all right, they have the best shot of bottoming. First, Let's just step back and say, if your portfolio was not arranged to deal with this potential vote to leave, what should you do. The first thing you've got to

do is think about why that wasn't the case. So was it that you didn't known enough hedges in the form of gold or fixed income? Were you too heavily inequities? That's a warning sign you're taking too much equity risk and rebalance that portfolio back to something like the classic sixty forty, which is my default value always for a portfolio composition. Or were you too exposed to emerging markets for example, in which case you've got a tailback that risk.

Emerging markets versus developed versus US US is going to be the best game in town now. If you want to pull that back in and start looking at more US, I'd say that's a pretty smart move. Russell rebalancing huge, So it's in a nutshell it it's huge. You've got a couple of minutes though what happens now it's every June. It's a big deal. Some say it could almost have not quite a Brexit impact on the stock market, but

it's definitely a big dynamic. Yeah, the Brexit vote, in the Brexit outcome came in a very bad day because once a year the Russell in the sea's rebalance, and most importantly the one thousand and two thousand there's roughly by eight hundred and fifty billion dollars of money actively managed to those into sees and today you're gonna see a rebalance of roughly forty seven billion dollars comprising just shy a four hundred of those three thousand names, and

they all have to print the trade at the close. That's how the index trackers work. And so we've got a few minutes left. We'll see how it went. But I wouldn't be surprised to see those trades go off with, you know, in a very volatile market at levels that you wouldn't have expected any other time. Just a little bit more from your trading insight. Because you mentioned the three day rule. What are some of the other mistakes that people typically make in volatile markets. They make decisions

when they shouldn't make decisions. They second guests at professional managers. What kind of thing? Yes, the number one, and this has been very true of every pullback since the financial crisis. People get out at the bottom, they let their fear overcome their rationality and they tell their manager to sell, or they sell their self directed accounts at the bottoms. You know, there's a saying on trading desks instead of yelling, you should be selling instead of crying, should be buying.

That's a great thing. I love that. So are you watching next week? I mean, it is the FED just like Okay, we've watched them to death. Now we know with this gent they did the right thing. They didn't raise the key rate a lot of reasons other or not to do, say sent global central banks, the news of UK. What's are what are the headlines to watch for? You know the headlines will be how much interaction there

is between capital markets, volatility and policy makers. We have the usual soothing words out of the Fed and other folks this morning saying we stand ready to provide liquidity. But if you get a second and third day of a drop off, are there any policy explicit policy actions. That's the thing I'm looking for first and foremost. Thank you very much for coming in and spending time with us. Thank you Nicholas. He is the chief market strategist for converge x and he can converge x can be followed

on Twitter at converge x. Much appreciated. You're listening to Taking Stock. I'm pim Fox my co host Kathleen Hayes. We're gonna take you through to the close. Stocks now near the lows of the day, trading SMP five at two thousand forty one on a drop of three and a quarter percent, Dashdack down nearly and US treasuries they're rallying. This is taking Stoff on Bloomberg Radio