With chinks beginning to show in the U.S. dollar's armor, today one of the greats in the business sent King World News a powerful piece warning that the fantasy is now unraveling as disastrous policies to have a huge impact on the net worth of everyone on the planet, plus a bonus Q&A that includes gold.
By Bill Fleckenstein President Of Fleckenstein Capital
June 3 (King World News) – The bonfire of the bond markets continued overnight in Europe, with virtually all of them lower, apart from a rally in Greece. Germany's yields are now approaching the high end of their recent trading range, as they jumped 17 basis points to around 71 bps.
As has been the case, however, equity markets weren't impacted too seriously, though they were a bit lower. Once again, the same form held here in America, with our bonds roughed up, but the stock market pretty much ignoring that, as equities traded in a small range around unchanged all day and closed flattish.
Away from stocks, the metals and oil were slightly higher. Meanwhile, green paper today saw a very large break to the downside and one could be encouraged that the dollar is experiencing a failing rally. I say "encouraged" because dollar strength has been the final leg propping up the "all is well" Fed fantasy, and the sooner that fantasy is behind us, the better.
The Fantasy Is Now Unraveling
A quick review of the facts: the Fed printed so much money it drove the stock market to 2,000 on the S&P, made people believe the economy would be able to sustain a recovery. Thus, the Fed would hike rates, in a return to "normalcy," while every other country was behind the curve and that therefore the dollar would be in demand.
In short, they printed enough money to drive the stock market and, perversely, the dollar to the moon. (Note that I call this a "fantasy" because the huge rally in the stock market has warped people's thinking about everything, as I have discussed all along.) Now the dollar has been weakening, and the fantasy has unraveled to a small degree, but by and large the belief is still intact when one looks at the pricing of stocks, gold, etc.
The reason it is important for the dollar to decline is because the sooner we put the fantasy behind us and move into the crackup phase, thereby forcing the Fed do what it is going to do next, the sooner it will be discredited and we can finally start to solve some problems. The sooner that happens, the better off we will be, although it is going to take some time.
Disastrous Policies To Impact The Net Worth Of Everyone On The Planet
Then again, it already has. This is now the third bubble that has been spawned by the Fed as it pursues policies to address the consequences of prior poor policies. After the next crisis we can only hope that sanity may break out, but since we are 0-for-2 so far, we have to be alert to the possibility that the Fed will turn around and do the exact same thing all over again. How long markets let it get away with a disastrous policy agenda will have a huge impact on the net worth of everyone on the planet."
Included below are two 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: A ton of movement in the colored paper department today – would you have thought gold would be up more today or is it just sorta trading on its own do you think? I'm just trying to find something to correlate with it and i'm coming up empty. Not that it matters – (this coming) September is year 4 from the gold top – I believe that will be the time to move the chips ALL IN on the long side.
Answer from Fleck: "Gold is on its own, it is not simply driven by what the dollar does. It has only been loosely correlated for a while now. Also, I don't see what difference four years makes. However, gold has been basing for two years now and the range has gotten quite small, suggesting that the price is wrong to facilitate trading (as my commodity buddies like to say), which means that a bigger move is coming."
Question: Eventually Greece then Portugal, Spain etc should default, whenever this begins isn't it logical initially there would be flight to the USD as the Euro fiat currency implodes? Then wouldn't it make sense to accumulate gold with your USDs ? Or is the USD bypassed for gold as the contagion will spread to our shore? Thanks in advance!
Answer from Fleck: "Maybe, maybe not. It all depends on what else is happening when/if these defaults happen. As for gold, those defaults would likely be quite bullish."
***To subscribe to Bill Fleckenstein's fascinating Daily Thoughts CLICK HERE.
***ALSO JUST RELEASED: A Remarkable View Of The War In The Gold, U.S. Dollar And Crude Oil Markets CLICK HERE.
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