The damage from last week's surprise Brexit vote is continuing this week, with U.S. equities down again sharply on Monday. No wonder one of the top search queries on Google is "Should I buy gold?"
Investors are scared. And they're looking for a shelter from the tumult.
To be sure, the volatility we've seen over the past week has been in some cases more severe than during the 2008 financial crisis.
Key technical support levels have already been violated or are under threat. The Dow Jones industrials index has traded below its 200-day moving average for the first time since March. The Nasdaq Composite has fallen back to levels not seen since February. Ten-year Treasury bond yields, at 1.46 percent, have returned to lows last notched in 2012's scare over the European debt crisis.
Overseas, the damage is even worse. European stocks suffered their worst-ever one-day loss on Friday. U.K. sovereign default risk has spiked to three-year highs. Italian bank stocks are down 25 percent, while trading in British banks was halted overnight after their shares lost 23 percent over the last two days. Banks are scrambling for U.S. dollar liquidity, tightening interbank lending markets.
The collapse in "cable" -- the valuation of the British pound vs. the U.S. dollar -- was what statisticians call a 12-sigma move. That is, it suffered a change of 12 standard deviations below the average. That's the very definition of a black swan event.
Losses look set to continue as the political fallout is deepening.
In comments to Parliament, British Prime Minister David Cameron said the vote to leave the EU must be respected -- diminishing the hope of many globalists that the result would be ignored, as was the anti-Lisbon Treaty vote in 2008 and the anti-bailout vote by Greece in 2015. The president of the European Parliament raged that the British "violated the rules" and that it's not "the EU philosophy that the crowd can decide its fate."
Ignoring or invalidating the voting results in one of the world's largest democracies would have unleashed populist outrage. Cameron added that the timing of triggering Article 50 -- the EU's exit clause -- was to still be decided. The overall exit process is likely to take years, during which the crisis will simmer.
So where can investors turn?
Obvious safe haven candidates in this acute phase of market panic have included gold, silver, Treasury bonds and volatility funds such as the iPath Short-Term VIX (VXX). Consider that over the past two days, the S&P 500 has lost more than 5 percent while the iShares 20+ Year Treasury Bond (TLT) has gained more than 5 percent. For a portfolio that held an equal allocation of Treasury bonds and large-cap stocks, the last two days of market turbulence have been a wash, proving the value of diversification.
Over the horizon, the situation is harder to call.
Bank of America Merrill Lynch analysts call Brexit the "biggest electoral riposte to our Age of Inequality" and recommend clients prepare for a period of populist economic policies, higher levels of volatility, strength in precious metals and the outperformance of Main Street assets vs. Wall Street assets. They recommend a focus on cash, gold and volatility over the near term.
Further out, they recommend investors concentrate on a combination of high-growth/high-quality stocks and underowned inflation-focused assets such as commodities, emerging market stocks and even British stocks.
The former reflects the fact that investors are likely to seek out high-quality assets. The latter is a riskier play on the eventual turnaround of beaten-down U.K. assets on the belief that policymakers will find a way -- likely through aggressive central bank-funded infrastructure and other fiscal spending -- to boost inflation higher.
Eventually, these assets will make attractive value plays: Already, U.K. stocks are at 40-year lows vs. other developed market equities, while commodities are suffering a rolling 10-year investment return at 80-year lows. But like so much in life, timing will be key. And in investing, that's never easy.