With the the price of crude oil tumbling nearly 4 percent and the euro gaining against the dollar, one pro discusses what he is doing with his own money after the gold & silver smash.
By Bill Fleckenstein President Of Fleckenstein Capital
November 29 (King World News) – Overnight bond markets were nearly all higher, and equity markets followed modestly in their wake. The action here for the stock market indices was to the upside, led by the Nasdaq, which tacked on 0.75% in the first couple of hours. I would imagine that had something to do with end-of-the-month tape painting, but who knows. After the initial surge, the market drifted sideways until about an hour to go, when I had to leave. Away from stocks, green paper was slightly weaker, oil lost 3%, fixed income was a touch higher, and the metals were mixed, with silver a little higher and gold a bit lower…
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Nevertheless, it feels like the area of greatest certitude is the belief that the dollar will soar nearly indefinitely while the rationale (on the other hand) is somewhat spurious. I continue to read about repatriation, but there is plenty of data to suggest that much of what would be repatriated if companies were given the right tax incentives is already held in dollars in the first place. So repatriation per se will not necessarily make that much of a difference prospectively, especially since so many people have seemed to already have factored that in.
The Special FX Are Amazing
Another point that I see made quite a lot is that people around the world have borrowed in dollars and thus are short them. While that is true, the implication is that, for example, if $10 trillion has been borrowed, converted into some other currency, and spent on something, then that $10 trillion is now effectively $0. Far from it. Whatever currency it was turned into may have declined some, but only by a percentage. Said differently, the amount of money that these folks are “offside” and therefore stressed by is not nothing to them, but it is not necessarily the infinite wall of money that needs to be converted that people imagine.
Of course, we could see a situation where foreign banking systems experience a shortage of dollars, but that could easily be remedied by a swap line from the Fed, which they would almost certainly do. Thus, I think some of this thesis is not especially well-founded. (All colored paper has huge flaws nowadays, including the green kind.)
Through Rise-Tilted Glasses
Lastly, I have seen some pundits with such optimism that they have even suggested that the Chinese will fund our infrastructure needs. Thus, it is not even going to cost us any money. I bring that last example up just to show how radically hopeful people have become. Even though I am often labeled a bear, I too am an optimist and have been rooting for our problems to be addressed so that we don’t keep kicking the can down the road until they become so big we can’t possibly fix them.
What I think this radical outburst of optimism shows is how much of that very sentiment was suppressed by the incredible incompetence (from a business perspective) of the Obama administration, as well as the stupidity of the previous Bush administration. Said differently, people haven’t had the chance to let their imaginations run wild to the upside since probably 1999 and they are taking full advantage. And while that is all well and good, in financial markets when you discount the impossible via valuation (or lower interest rates) you are going to take an incredible amount of pain at some point prospectively when the impossible doesn’t come true.
Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.
Bonus Q&A
What Fleck Is Doing After The Gold & Silver Smash
Question: Fleck, this has been the most devastating few weeks for the ‘ole portfolio, in terms of paper losses. For the first time in years, I find myself questioning all I have believed regarding a long-term money making outlook. The weekly chart on gold/silver looks like the next level of support will be around the 2016 low. I may be wrong here, but your tone in recent raps seems to lacking conviction in the bull story. If you are still confident in your bullish thesis, what is preventing you from “backing up the truck” and buying furiously?
Answer from Fleck: “The market is in kind of a freefall. I like to see some signs of stabilization before acting. Read in the archives about how I handled the bear market declines. Besides, my core position is pretty beefy.”
Question: Hi Bill. Have you read the latest “COT” report that just came out? If there was any reason to give hope to all your subscribers in the metals arena I believe this is it! The managed money traders are not adding to the short side. The less they can add the less the Commercials can buy back there own shorts! That should mean the less prices can drop. I think this is very bullish sign. They may take a few more bucks off the metals but I truly believe the engineered price decline is almost over. Sometimes we have to go thru a lot of pain in investing then were rewarded. I believe next year will be a very Merry Christmas to all your subscribers who have big and small positions in the metals and miners. Thanks.
Answer from Fleck: “I don’t place much emphasis on the COT data unless it is at a huge extreme.”
Question: The title ribbon today had the bear with the Dow 10k hat which prompted this question…what would you guess the probability would be that the Dow actually breaks below 10,000 ever again? Would it be as high as 50% do you think?
Answer from Fleck: “Depends how things play out, but it could happen for sure. Too many variables are in flux right now to have a big opinion about that.”
***To subscribe to Bill Fleckenstein’s fascinating Daily Thoughts CLICK HERE.
***On the heels of the recent brutal multi-week smash in the gold and silver markets, KWN has now released the powerful audio interview with Egon von Greyerz and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO JUST RELEASED: John Embry – Some Long Time Gold Holders Are Now Capitulating CLCK HERE.
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