On the heels of the second Chinese devaluation of the yuan, today one of the greats in the business sent King World News a fantastic piece discussing the "uniquely crash-prone" stock market, plus a bonus Q&A that covers exactly how he is shorting the stock market, a question about buying the mining shares and much more.
By Bill Fleckenstein President Of Fleckenstein Capital
August 12 (King World News) – The Chinese yuan weakened further overnight, despite the fact that the PBOC said that the previous day's devaluation was all we would see. That sent markets reeling, with Asia losing 1% to 2%, depending on the market, and Europe was even worse, declining about 3%. The SPOOs were hit overnight and that weakness continued into the first hour, as the indices here dropped better than 1%….
Continue reading the Bill Fleckenstein piece below…
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Tricks of the Trade
A bit of a battle ensued, as the bulls tried to turn the tape by driving Apple from a $2 to $3 loss to a small gain, and that invigorated some stocks in the chip sector, such as Intel. Lord knows what folks were thinking, but that's what was happening in the tech sector. Meanwhile, a lot of the high-flyers were under pressure because Alibaba was unsuccessful at the idiotic Wall Street game of beat-the-number.
That early chip stock machismo turned out to be a tipoff that the market wasn't going to crack today, and the rest of the session was spent rallying such that the market closed slightly higher.
Away from stocks, the big surprise was that the dollar was hammered today. It seems to me that dollar bulls are everywhere, and as I have said many times, I think their whole premise (i.e., that Fed policies work) is wrong. It seems to me the dollar is nothing but the currency version of a long SPOO position. Turning to fixed income, it was initially higher today, as one might expect, but closed flat (though the long end was lower). The metals gained ground, adding over 1%, while the miners were quite strong as well.
In Tippy Top Condition
Despite today's recovery, the stock market continues to look like it is in big trouble. If we start to get any serious attempt at selling we could see the indices dive fast. As I have noted, the market is uniquely crash-prone, and my guess is we will find out in the next couple of months if that observation is actually correct or not.
Included below are three questions and answers from today's Q&A with Bill Fleckenstein. The questions are from his subscribers and they get to read Fleckenstein's answers every day.
Bonus Q&A
Question: New subscriber comment…you have been the only person I have heard to discuss the possibility, or expectation, of a QE4. Well, low and behold this AM on CNBC, a panel was discussing China devaluation. Art Cashin, on the panel, in passing very matter-of-fact says…"and we may have a QE4". It just shot past them, until David Faber says..what did you just say Art? Then they all were all aghast, as he reiterated … Seems the pundits may be greasing the runway for the Fed…?
Answer from Fleck: "They will do it, but not until after the stock market gets hammered."
Question: Bill, have you heard all the mainstream chatter recently about the real possibility of more QE from the Fed? Even Art Cashin mentioned it yesterday as if it was very obvious (because it is). He said: "If things don't start to go right, do they have any other choices?" He even said the Fed is "in a silly loop" and "QE is all they can do."
This is all completely obvious to most of us here, but I find it fascinating that QE is being discussed openly at the exact same time as the possibility of a rate hike only one month from now! I remember Peter Schiff about a year ago, before QE3 had even ended, saying they'd do QE4 and of course he was laughed at and ridiculed.
I don't understand how the Fed or any central bank has any credibility at all. Either people are really slow learners or the folks on Bubblevision and elsewhere are playing dumb, lying, or misleading their viewers (do they have any left?) in order to keep this game going and not incite a panic. This situation is truly pathetic and can't end soon enough.
Answer from Fleck: "Everyone who understands the Fed has been punished until now-ish. Those who believe the Fed's b.s. have won, until now. All that is changing."
How Fleckenstein Is Shorting The Market
Question: Bill, with the markets getting hammered lately, I assume that you will be waiting for a failed rally to put on more exposure vs chasing with shorts or puts?
Also, is there anything you look for to determine how far a rally may go before failing (technical's or gut feel or a bit of both?). Of if you are confident the next rally will be a failed rally do you start building up a put/short position on up any up days? Thanks
Answer from Fleck: "No, I actually added some exposure today (Wednesday). The failed rally will have to come from lower levels. We are still at the top for the SPOOs, but I'm adding individual companies and am about 50% to 60% short."
Frustration With Trying To Buy The Miners
Question: I was being pretty careful with doing anything, just kind of watching. But I decided Monday I was going to take some options positions in some of the gold stocks, AEM and GG in particular. Then we had a price explosion Monday, and so I kind of sat back.
The dust seemed to settle Tuesday and I was going to take a stab at it today, but we get another move over 7% right at open. It feels like the stocks are running away from me, but after so many false starts I feel sort of frozen (and after the first China move was pretty surprised by the second one).
In this kind of situation, with no trading position, would you be more prone to let things settle for a day or two again, or maybe just take a smaller position than you had planned?
Answer from Fleck: "Probably the latter. The size of the moves doesn't really matter because they are so depressed. It's part of what you must be ready for if you are going to try to buy them after they turn. None of this is easy." ***To subscribe to Bill Fleckenstein's fascinating Daily Thoughts CLICK HERE.
***KWN has now released the incredible audio interview with 50-year veteran Art Cashin, where he discusses why the worldwide liquidation scramble could morph into a full-blown 2008-style collapse, the chaos in China, global stock markets, commodity markets, whether the U.S. stock market has finally put in a major top and much more, and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO JUST RELEASED: Is The Price Of Gold Really Headed To $20,000? CLICK HERE.
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The audio interviews with Rick Rule, Gerald Celente, Bill Fleckenstein, Dr. Paul Craig Roberts, Robert Arnott, Eric Sprott, John Mauldin, Stephen Leeb, Egon von Greyerz, Nomi Prins, Andrew Maguire, Michael Pento, David Stockman, Chris Powell, Dr. Philippa Malmgren, Marc Faber, Felix Zulauf and Rick Santelli are available now and you can listen to them by CLICKING HERE.
