For anyone who is worried about the action in gold, silver and the mining shares, just read this…
By Bill Fleckenstein President Of Fleckenstein Capital
February 28 (King World News) – Today’s early action was once again on the quiet side, with the indices sort of milling around unchanged, with a tiny bias to the downside through midday. Then they leaked lower before bouncing, and with an hour to go (when I again had to leave) the Nasdaq was 0.75% lower, with the S&P and Dow somewhat firmer. Away from stocks, green paper was mixed, fixed income was flattish, and the metals were mixed with small changes…
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Mr. Market Loves To Mess With Our Mines
Yesterday I didn’t emphasize that the mining complex had been hit as hard as it was because, as noted, I left about 30 minutes early before the real damage occurred (obviously, the metals themselves didn’t do much, it was all in the mining sector). In the wake of that, I received an inordinate amount of angry and whiny emails last night, so I thought I would take a moment to review some points about the mining sector.
First of all, anyone who is involved in the metals complex in any way by now ought to know that we can see incredible volatility on any given day for no particular reason (thanks to ETFs, leveraged ETFs, and just general lunacy). That has happened over and over and over again, so everyone should be prepared for that. That’s why I constantly remind people you need to have the right position sizes and overall exposure to manage your risk and frustration (I manage mine through a combination of investment and trading positions).
I certainly don’t like the walloping these stocks take from time to time any more than anyone else does, but I know it is just part of the landscape. I should also point out that they can also be quite frisky on the upside. Naturally, no one ever complains about that, but you can’t have one without the other.
Eternal Vigilance Is the Price of Sanity
In sum, folks must have a game plan as to how they are going to react to the ups and the downs and be mentally prepared for them, and each person has to figure out how to pull that off for themselves. Everyone wants as much upside as possible, but that means more risk, and you can’t have only upside and no risk.
Unfortunately, gold is just a price, so it is hard to get an edge on when it is going to go higher or lower. And of course the miners are a derivative of that price. Sometimes the miners give you a heads up about where the gold price is headed — a topic I touched on Friday — and though I said I thought the miners might mill around and gold could rally, we’ve seen a variation of that, as the miners were hammered and so far gold has not really come in.
How this will resolve itself is impossible to say. Gold may have a correction and then the miners and gold could rally together. Then again, gold may not sink that far but may instead grind sideways while the miners play catch-up on the upside (some other variations could occur as well). From a technical perspective, you could make the case that the whole GDX complex is in the process of forming an inverse head-and-shoulders bottom. If that’s true, there isn’t much downside to the miners and that means gold is probably not going to pull back too far.
Emotional Checks = Mental Balance
Regardless, the bottom line is that if the action in the miners and the metals makes you so angry that you need to lash out, that probably means certain positions are too big or you have too much exposure overall and you would be better served in addressing that than taking out your frustrations by blaming others for your decisions.
Just to be clear, I am no saint, and I get just as upset as everyone else, but I have learned over the years that you must keep your emotions in check if you’re going to have any chance at making money. While the miners do attempt to make whiners out of everyone, we must not fall into that trap.
Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.
Question: Buffet on Monday: “Measured against interest rates, stocks actually are on the cheap side compared to historic valuations,” Buffett told CNBC on Monday. “But the risk always is interest rates go up, and that brings stocks down.” Seems like he has been saying the same thing for years. Is he always bullish? I wonder what he was saying in 2007 before the crash?
Answer from Fleck: “Except rates aren’t where they are in a free market, they were manipulated there by central banks, so it is a bad comparison.”
Question: Fleck, I feel like I’m in the Twilight Zone. I just heard Rick Santelli on Bubblevision say that 7-8% interest rates may not derail the equity markets since that would mean economic growth is very strong. WTF has gotten into that guy? He has turned into a bubbleonian since the election of Trump. If interest rates ever get that high, I would venture to say that the entire system is a 0 then, you would have entire countries going under.“
Answer from Fleck: “He is wrong, 7% to 8% rates would cause huge problems.”
Question: Well the miners did better today. no? they held their gains till noon or so before getting the tar knocked out of them! a months gains gone in 3 hrs. it feels more and more like a fools errand to me!
Answer from Fleck: “Then sell them. Whining won’t solve anything.”
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***KWN has just released one of Art Cashin’s best audio interviews ever and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO JUST RELEASED: A Crucial Update In The War That Is Raging In The Gold & Mining Share Markets CLICK HERE.
KWN has also released the remarkable audio interview with London whistleblower and metals trader Andrew Maguire and you can listen to it by CLICKING HERE.
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