With the Nasdaq falling nearly 2 percent, while gold and silver surged, today one of the greats in the business warned that change in global markets is now happening violently but there will be even more carnage, plus a note from Fred Hickey.

By Bill Fleckenstein President Of Fleckenstein Capital
February 8 (King World News) – I’m going to begin a bit differently today and cut right to the chase. One hour into the day the Dow, S&P, and Nasdaq were about 2% lower. One recent excuse that was not the culprit in this case was China, whose markets are closed this week. I bring that up because people in America are constantly trying to find the reason why our stock market has declined and blaming it on anything except the facts. (That’s not to say there aren’t problems in China that will have an impact here, because there are, and they will — ditto Europe.)…


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Bill Fleckenstein continues:  Speaking of Europe, today’s proximate cause of pain there (and here, too) was more distress in the banking system, which was hammered yet again, led lower by Greek banks, which saw their CDS spreads blow out even more than those of other countries, and Europe’s stock indices were about 3% lower during the first hour of U.S. trading. (Greece has seen its stock market collapse over 30% so far this year!)

Tragedy + Time = the Fed
While the action in Europe helped pressure U.S. trading, stocks continued their path lower for two simple reasons: (1) the Fed stopped printing money about 18 months ago (which was the only reason stock prices got to where they were in the first place), and (2) the economic numbers have deteriorated here and around the globe, as have earnings. As I have noted, the Fed is trapped and can’t ride to the rescue until there is a big enough decline to justify a panicked response (though that won’t do much for the Fed’s credibility).

And the Fed isn’t the only entity that is trapped. Many financial organizations are, too, because they are not allowed to manage risk, thanks to the idiotic consultants that their clients use who want to pigeonhole everybody so they can analyze them more easily.

You Didn’t Herd It From Us
One of the great bits of stupidity in the last 25 years of misallocated capital — thanks to Greenspan, Bernanke, Yellen and their foreign imitators — has been a complete abdication of managing risk, because doing so would have made you look stupid for so long that no one would stick around. Then when change happens, it happens violently, and as I have said many times along the way to this point, certain scenarios go from being impossible to inevitable literally in a matter of days.

With that preamble out of the way, after the first hour weakness the market continued to weaken slightly, albeit more slowly, and with an hour to go it had lost around 3%. From there a rally began that was most likely short covering, but who knows. In any case, dip buyers managed to trim the losses to the roughly 1.5% or so you see in the box score.

Away from stocks, the carnage also saw green paper under a lot of pressure, because obviously even though the Fed hasn’t admitted it yet, the market has figured out that the chance of it raising rates again is literally zero. Fixed income was higher, oil lost 3%, and the metals came to life, pretty quickly gaining 2%-plus before gold closed up 1.5% to silver’s 2%. The miners mostly behaved well initially, though they closed quite a ways off their highs.

King World News - Bill Fleckenstein - The Longer A Mania Goes, The Worse Off Everyone Will Be When It Ends - The Aftermath Of This Is Going To Be Extremely Brutal, Plus A Bonus Q&A

Included below are five questions and answers from today’s Q&A with Bill Fleckenstein.

Bonus Q&A

Question: Dear Fleck, you mentioned recently that you are looking at whether gold bounces off of the 200 moving average from above and then rallies. Does it make much of a difference to you whether the bounce is off of a declining or rising 200 day moving average? A couple of years ago there was a small bounce off of a flat moving average that failed. However, you have to go all the way back to 2009 to find a bounce off of a rising 200 day moving average, and that lead to a long rally. It’s great to see the current move and given how much room there should be on the upside I’m not in a big hurry to add given my current positioning. Thank you.

Answer from Fleck:  I wish the 200-day was already rising, but it isn’t. A test from above that is successful will lead to that eventually, however. For now all we can do is see how that test develops. I’m guessing it may be scary, but will “work.” Remember, there is no black and white in any of this, it is all guesswork.”

Question: Bill, I got into the gold trade a few years ago near the top. Fortunately, I kept some dry powder and have been adding to positions over the last couple of years. We have seen other failed rallies in the sector recently but this current rally seems to have some strength that was not there in earlier rallies. I am almost afraid to think that the trade might work this time as I have gotten gun shy. With that said, I am fully invested in the metals based upon my risk level. Do you anticipate that you will trade some of your gold positions (take some short term profits) or do you think that this is the real thing and will let your positions ride?

King World News - Richard Russell Says Americans Are Scared To Death As He Declares What Will Confirm New Bull Market In Gold

Answer from Fleck: Yes, I think this is the real deal because it is being accompanied by a loss of faith in the idiot central bankers. I will trade some extra big positions to some degree, but I am going to sit with my positions as best I can. This is a brand new bull market.”

Question: Do bull markets in commodities/gold start out this explosively? i thought it would be much more gradual/slowly and under the radar and most people wouldn’t even notice it until it is well into its bullish cycle. never mind some of the speculative junior miners but GDX (36%) and GDXJ (27%) as well as the big miners have had an enormous move in the past 3 weeks. i doubt this is sustainable and will probably pull back but just wanted to know your general thoughts as if this is common or an aberration to starts in bullish cycles in commodity/gold.

Answer from Fleck:  Yes, there is often an explosive phase early on in any bull market. I remember my first bull market (August 1982) to this day.”

Question: Hey Bill, although I get ridiculed, I think we’re in a bear market which seems to be supported from credit and fundamental perspectives as well as from the technical side. i am sure every bear market is different but too many similarities which I cant ignore so I was just wondering your opinion as to where you think we are if one were to use a baseball analogy. I reckon/guess it’s in the middle innings. would this be in the same ballpark as your estimate? Thanks

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Answer from Fleck: Third inning or so.”

Question: Fred Hickey in his newsletter taking about money printing, quotes Ludwig von Mises: “The boom can only last as long as the credit expansion progresses at an ever-accelerated pace.” Funny, isn’t that also the definition of a Ponzi scheme??

Answer from Fleck: Hmmmm. 🙂

***To subscribe to Bill Fleckenstein’s fascinating Daily Thoughts CLICK HERE.

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