On the heels of the historic vote by the Greeks to reject more austerity, today one of the greats in the business sent King World News a fantastic piece about the vote in Greece, a global wakeup call, "why there is no time left," a great wall of worry, plus a remarkable bonus Q&A that includes everything from the Greek vote to gold.
July 6 (King World News) – Though many were taken by surprise by the Greek referendum vote, I certainly wasn't, as I noted last Wednesday that my feeling was the measure would be rejected. While that was a relatively straightforward observation, what happens next is not….
Continue reading the Bill Fleckenstein piece below…
Judging from the reactions of world markets, as of Monday mid-morning, they seemed to conclude that everything would still be OK, but I don't really see how that could be the case. First of all, the powers that be who run the EU can't grant any sort of relief to Greece without having to worry about doing the same for Ireland, Portugal, Spain, and possibly Italy. Second, even if a solution were possible, I don't know if they will have enough time, given that Greece's economy and banking system are on the verge of the functional equivalent of vaporization. Thus, I really don't see what can be done to save the day.
"There Is No Time Left"
In addition, through the ECB's and other worldwide QE, risk has been suppressed such that there is a tremendous amount of complacency and the signals that one might expect from markets don't seem to be there. The Lord of the Dark Matter, who summed up those points as follows:
"And that is actually a bad thing: for the less contagion we and [the ECB and EU ministers] see on our screens due to the ECB or other sand-bagging markets, the more time European creditor nations, the troika and so forth, may feel they have to negotiate with [Greece’s left-wing party] Syriza. They are wrong, there is no time left, and if Greece falls out of the euro, then why would anybody want to keep money in a Spanish, Portuguese, or Italian bank."
Thus, too big to fail may finally have evolved into impossible to bail out.
That brings us to the markets to watch for signs of more trouble, as in the weaker government credits in Europe that Mario Draghi has driven to such ridiculously low yields, and of course related financial stocks and bonds there. As I noted, the response in the early going here in America (which was basically the entire European session) was rather muted. So-called "peripheral debt" — basically the PIIGS — all saw their bond markets a bit weaker, and equity markets declined around 1.5% to 2%, though some were a bit worse by 15 to 20 basis points. Meanwhile, the euro lost less than 0.75% and the SPOOs cut their losses from roughly 1.5% last night on the lows to about one-third of a percent.
Thus, all markets were basically signaling that all was well once again. One might ask why, and I think it is a consequence of what I touched on already, i.e., all the money printing that has gone on, and has resulted in making markets and market participants delusional.
A Global Wakeup Call
On that subject, Peter Boockvar sent me an email this morning in which he tried to describe the current financial environment. I think he did quite a good job, so I am going to share it here:
"I'm not sure I can add anything new as I truly don't know how this plays out in the short term. What I do know is that all sides of the negotiations remain delusional. The Tsipras government is delusional if they think the Europeans are going to keep shoveling them money without any tough reforms (I don't believe higher taxes is the answer, but right-sizing their public sector certainly is). Tsipras himself is delusional if he thinks that the economic policies of North Korea are the best path to follow.
The Greek people are delusional if they think they can have a better life as long as the private sector is being milked to fund an overly generous public sector (in other words, the welfare state is officially out of other people's money). And, the Europeans are delusional if they think they don't have to write off any portion of the 300b+ Euro debt that is owed to them.
From a broad market perspective, we know Greece is a tiny country and thus its troubles won't matter for the global economy, but if investors don't take this as a wakeup call that they should start paying attention to valuations in year seven of a global bull market in many asset classes, I believe that is a huge mistake. My biggest worry is not Greece, it is a global rise in interest rates which we've already started to see as investors have finally said 'no mas' to what was just two months ago an insane level of interest rates around the world, mostly in Europe.
Whether 'no mas' was triggered by the realization that debt levels around the world have reached epic proportions and/or inflation expectations have begun to rise and/or there is a belief that economic growth is somehow going to start accelerating (which I doubt for now), the direction of interest rates should be the main focus. For U.S. equities, expensive can stay expensive, but valuations do start to matter when interest rates rise and earnings growth slows, and that is the period we are entering.
"As for China, and in honor of the last Grateful Dead concerts, Chinese authorities have made a 'friend of the devil.' That devil is the belief that one can successfully bully and manipulate markets higher for any prolonged period of time. They've fallen victim to the central bank belief (no thanks to the Fed) that higher stock prices should lead to economic growth rather than prices reflecting the state of the economic growth.
If there is any economic theory that should be thrown to the wolves, it is the stock market wealth effect, as not only is there none, but it always reverses itself eventually if stock prices don't truly reflect the underlying asset they are valuing. When the chapter is finished on this time of economic history, hopefully the current orthodoxy of central bank free money being the answer to economic ills rather than the cause of them will finally be questioned, criticized, and repudiated.
A Great Wall of Worry
On the subject of China's stock market, the situation is getting very dicey as the government tries to "unburst" that burst semi-bubble, but so far their efforts haven't helped all that much in stemming the panic.
With all of that out of the way, turning to the market responses, as noted above, the early going saw overnight stock market losses cut dramatically before slipping modestly in the afternoon to close 0.5% lower.
Away from stocks, green paper was stronger, though the euro only lost 0.5%, fixed income was quite strong, and commodities were really roughed up, with oil hit for about 7% and copper for about 4%. If the markets weren't so computerized, one would be tempted to say that the decline in the oil market is likely an indication of weaker world GDP, which has not exactly been priced in to world equities as they pretend all is well. Turning to the metals, they were muted and closed flattish, I suspect for the same reason stocks shrugged off the Greek news, i.e., supreme confidence in the world's central banks.
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.
Question: Do you think that gold might correct its mispricing violently upward when psychology changes? Thank you for your always interesting commentary.
Answer from Fleck: "Yes, I do, absolutely."
Question: Dear Bill,
You often mention that a turn in market events will seem "impossible" until suddenly it seems "obvious." I just wanted to point out for the sake of subscribers who are having a hard time holding it together, that this is *always* the situation for independent thinkers, so it's best to get used to it. Virtually every single major invention or scientific discovery was attacked as 'impossible' or 'flatly wrong', until it was accepted as 'obvious.'
What really "gets" me is seeing those same folks who said it was "impossible" later saying it was obvious. I was one of the few (with you) who called the 2008 crash (made a lot of money on it), and I know how lonely it was then, so to hear so many people *now* saying that "housing was obviously in a bubble" and it was "obviously going to crash" is just too much!
Answer from Fleck: "I hear you about that. They will say the same thing after this Fed-induced bubble bursts."
Now In The Give Up Phase As Gold Bear Market Coming To An End
Question: Hi Bill,
I just wanted to make a comment before you received a flood of ridiculous emails from others questioning why gold is not up in this environment. Every long-term gold bull should be happy with this situation. In order for the gold bear market to finally end, we probably need that moment when even some of the true believers in gold give up and say: "if gold can't even rise during this Greek crisis, then it never will." Then we'll shake out every last weak hand, and only then can a new phase begin as there will be no sellers remaining.
We don't need gold rallying on a Greece-specific event. Gold has much larger things at play, and its price will rise dramatically once this entire system is viewed as completely untenable and all faith is lost in these idiotic central planners who put on a brave face but are actually not in control at all. They are in way over their heads.
Answer from Fleck: "I agree with your conclusion, but I don't think we need any more giving up . We have had plenty of that already." ***To subscribe to Bill Fleckenstein's fascinating Daily Thoughts CLICK HERE.
***KWN has now released the incredible interview with the top trends forecaster in the world, Gerald Celente, where he discusses why the global panic is on, what surprises to expect and how it will impact major markets, including gold and silver, and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***KWN has now released the extraordinary audio interview with Andrew Maguire, where he discusses the gold and silver takedown, why the silver market is poised to skyrocket, the astonishing moves in the gold market by the bullion banks and much more and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO RELEASED: The Great Deception By A Criminal Syndicate Of Banks, Global Shock And A Wild Scene That Is Now Unfolding CLICK HERE.
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The audio interviews with Gerald Celente, Andrew Maguire, Michael Pento, Dr. Paul Craig Roberts, Rick Rule, Nomi Prins, Bill Fleckenstein, Stephen Leeb, Eric Sprott, Robert Arnott, David Stockman, Chris Powell, John Mauldin, Egon von Greyerz, Dr. Philippa Malmgren, Marc Faber, Felix Zulauf, John Embry and Rick Santelli are available now and you can listen to them by CLICKING HERE.