With the Dow closing on the bottom of a 250 point trading range and the gold market rallying off its lows, what’s next may surprise you.
By Bill Fleckenstein President Of Fleckenstein Capital
April 5 (King World News) – The stock market was back in party mode early on today, as the S&P gapped higher with the other indices quite strong and adding 0.5%, plus or minus, in the first couple of hours of trading. I’m not exactly sure what precipitated all the excitement, although I am sure the mainstream media will suggest it had something to do with Trump hype/hope, combined with a large job number from ADP. Of course, ADP was similarly positive last month and their data was not indicative of what last month’s nonfarm payroll report showed…
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They’re Probably Just Making It More Amazing
Not that facts matter very much. Witness Apple, where a story in DigiTimes suggested that the world’s greatest consumer product of all time, i.e., the next iPhone, might be delayed, and the stock price was unaffected by that news, as the suspension of disbelief overcame any angst (not that a delay must matter, but just imagine if a mining company announced any sort of delay).
In the afternoon, after the FOMC minutes were once again a nonevent, the market tried to push higher, but couldn’t. Then the unthinkable happened: the market reversed course and headed lower, with the Nasdaq leading the charge, as it lost 0.5% on the day. Thus, the exhaustion scenario continues to be a live possibility with huge consequences.
Away from stocks, green paper was flat, oil was a nonevent, fixed income was higher, and the metals were hit for a percent early on before they cut those losses to close roughly unchanged.
Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.
Question: What is it, Bill? Gold just can’t get over its 200 moving average. One could swear this is intentional by the Feb and the bullion banks dicking with Crimex.
Answer from Fleck: “Relax.”
Question: Bill, with today’s rally, does it change your thoughts that the market seems exhausted? Also, have you ever taken an aggressive short position before the market breaks?
Answer from Fleck: “No. Be serious. This is a process. If the market makes a new high, THEN my thesis will be in big jeopardy. Until then, it remains a possibility. I have in the past, but it is better to wait in the environment we are in now, IMO.”
Question: Hi Fleck, Thanks for the opportunity. Many readers are probably aware that Jeremy Grantham, the highly reputable value investor who has been engaged in analyzing market bubbles for the past 40 years, stated in a recent WSJ interview that we are not in a stock bubble. Two years ago Mr. Grantham suggested that one of his most defining characteristics of a typical bubble was that of being two standard deviations above fair value, and for stocks that was approximately SP 2400. In the current interview he adds that past bubbles had the characteristic of truly excellent fundamentals and an extreme euphoria that arises from extrapolating such fundamentals to an extreme, and that both these are essentially non-existent today. ( As often as this has been true, I don’t actually see that it was so in the 2000 Nasdaq bubble.) Mr. Grantham also pointed out that profit margins have been 30% higher in the last 20 years than the previous 70 years prior to that, and maintained that this is a legitimate cause for stocks to be higher. The upshot of all this is that this justifiably revered money manager and bubble expert is looking for a 15-20% correction in order to buy that dip! In doing so he seems to be on his way to joining such accomplished investors as Stanley Druckenmiller in turning bullish. So, is Mr. Grantham correct in suggesting in his interview that ‘ this time is decently different’ or is his statement a ‘this time is different’ warning sign? I fully understand you are looking for the same down move or a bit less large than his 15-20% to then see if the critically important, likely Fed assisted subsequent rally fails or not, but he is currently intending to buy that drop, meaning he sees a bull market. So can there be a red flag from such an incredibly accomplished money manager, in his own specialty of identifying bubbles or is it more likely time to open a crack to allow a reconsideration of the bearish view to come in? Again thanks. All the best.
Answer from Fleck: “He has a theory, as do I, neither are right yet. We can know what path is correct down the road, you don’t need to know now. FWIW, Stan Druckenmiller was bullish after the election. No telling what he thinks now.”
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