Since there was not a lot of movement in major markets today, here is a little something to break the ice.
By Bill Fleckenstein President Of Fleckenstein Capital
July 13 (King World News) – The stock market limped a bit higher through midday, in dull trading. In the afternoon, the indices inched up a touch more, closing with the fractional gains you see in the box scores…
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Away from stocks, green paper was flat, oil gained a percent, and fixed income was lower, as were the metals, led by silver, which dropped 1% while gold fell 0.2%.
A Little Something To Break the Ice
Since there is not a lot to say about the market action, until something changes, I thought I would comment on a couple of articles as food for thought.
I’m sure by now everyone has read about the massive iceberg that calved off from Antarctica. To wit, today’s New York Times ran an article above the fold headlined, “Antarctica Sheds Huge Iceberg That Hints at Future Calamity.” (It is their warning, layered onto the facts, that is precipitating my discussing this.) The NYT article went on to state, “The Western part of Antarctica was so vulnerable to human-induced climate warmings as to pose a threat of disaster from high seas.”
Do You Hear An Echo?
Let’s compare that to another article from the Washington Post that was headlined, “Arctic Ocean Getting Warm; Seals Vanish and Icebergs Melt.” The latter article stated, “The Arctic ocean is warming up, icebergs are growing scarcer and in some places the seals are finding the water too hot, according to a report to the Commerce Department yesterday from Consul Ifft, at Bergen, Norway.
“Reports from fishermen, seal hunters and explorers, he declared, all point to a radical change in climate conditions and hitherto unheard-of temperatures in the Arctic zone…Within a few years it is predicted that, due to the ice melt, the sea will rise and make most cities uninhabitable.”
What’s interesting is that the second article was published on Nov. 2, 1922 (thanks to Dennis Gartman for sharing it a couple of days ago). I happened to save it because I thought the parallels between that article and the current day were interesting. Then yesterday the news broke about the recent iceberg.
Obviously, there is no debate about whether the climate is warming. The only debate centers around two questions: is it permanent/irreversible, and what is the cause (i.e., to what extent is human activity to blame or is it a function of solar activity, or some combination of the two)? My purpose here is not to debate the cause (so please no emails arguing your point of view). Everyone can arrive at their own conclusions. My point is that history is useful for keeping projections based on current observations in perspective.
Neat Or On the Rocks?
I bring all of that up because, as it pertains to the stock market, we are seeing all sorts of behavior that we only see during bubbles and/or market peaks, especially really zany ones. For instance, naked put-writing has become so popular there are now ETFs dedicated to it, indexed money is now a $6 to $7 trillion activity, there are some 6,000 ETFs and only 3,500 stocks, margin debt is the highest relative to GDP that it has ever been, valuations are as high as they have ever been, yet folks continue to conclude that nothing can possibly go wrong because they — like most humans — are influenced more by what has happened recently, and they don’t have a very good understanding of what has happened in the past.
Thus, while it may not seem like there is much to be learned by comparing something like global warming to the stock market, in fact there is, namely, knowing what has happened before and using that to fight the tendency to expect recent trends to continue unchanged indefinitely.
Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.
Gold Bull Since 1999
Question: Just writing to say I have been a gold bull since ’99, and I won’t ask you to assure me that everything will be OK. I am confident our day in the sun will come. Funny snippet. Prominent journalist, noting the new ETFs designed to short the bludgeoned retail sector (which is probably a buy signal at some point). She recommends ticker symbol: MAUL.
Answer from Fleck: “Damn clever, thanks.”
Question: Seems to me that winding down the Fed’s balance sheet is bad (or at least, a minus)for gold (short, medium and/or long term), or at least gold priced in USD: selling treasuries increases rates, but not due to inflation; which, too, makes treasuries more attractive relative to gold. Gold has gone up when long rates have increased with inflation — but these would not be inflation-based rate increases, but rather, balance sheet induced. Bill, what are the flaws in this reasoning? Thanks.
Answer from Fleck: “Will they ever unwind that balance sheet???”
Question: For the Chronicles…My 20 year old nephew is studying finance and real estate at a large public university, (bright kid), willing to read and learn. At his summer internship yesterday (at a global real estate firm) he got to talking with another couple interns. In summary my nephew mentions he interprets the equity, bond and commercial real estate market as “pretty expensive” and likely due for a sharp correction. Or of the fellow interns waves him off and says “well what would you buy?” He’s says “Gold”. The kids start laughing…”GOLD???? WHAT IS THIS THE 1870’s!!!!!! Who buys GOLD?!!!!” My nephew responds… and says “Yes gold.. I’ve read that it is an asset that can appreciate in value when there’s fear and market corrections.” My nephew asks…”So…what would you buy?” The kid says…. “I bought Tesla last week” “Why would you buy Tesla?” Nephew asks. Response: “because it’s a cool company” I COULD CONTINUE….BUT ‘NUFF SAID!
Answer from Fleck: “LOL, Mania Chronicles 3.0 indeed. There you have it: 2017 “investment” strategy in a nutshell.”
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***KWN has also released the extremely important and timely audio interview with London metals trader Andrew Maguire and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
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