On the heels of a wild trading day where the Dow fell 470 points, today one of the greats in the business sent King World News a fantastic piece discussing the chaos in global markets and warning that the crash-prone markets are headed considerably lower, plus a bonus Q&A that includes questions on the action in markets and real estate.
By Bill Fleckenstein President Of Fleckenstein Capital
September 1 (King World News) – The world was a sea of red last night. China traded off by as much as 5% before closing roughly 1% lower, though many of the indices there were worse. Equity markets were even weaker in Japan and Europe, losing about 4% and 2.5%, respectively. The SPOOs were smacked for about 1% early on and were roughly 2% lower by the time New York opened….
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Continue reading the Bill Fleckenstein piece below…
I’m really not sure what the proximate cause was for all that red ink. The mainstream media blamed it on the Chinese PMI report, which registered 47.3%. However, expectations were roughly the same, so I have a hard time believing that was the cause.
Don’t Use a Window When You Need a Mirror
One of the reasons our media keeps wanting to pin lower stock prices on China is they can’t possibly believe that the cause might be home-grown. They don’t understand my closing point from yesterday (which I have been making for some time now), that the only reason the stock market, the dollar, and perceptions about the economy were as rosy as they were was because the Fed printed enough money to drive equities to the moon. Now the tide is going out.
It’s true that China is weak, but that is not the cause of our problems any more than the idea that a 10% decline equals a correction or 20% equals a bull or bear market. These headlines that get tossed around are just complete nonsense most of the time. In any case, I needed to get that rant off my chest.
Turning back to the action, the market made an attempt to rally after the weak opening, but didn’t get too far before it rolled over and began leaking. That “leakage” picked up steam in the last hour, and the indices closed not far from the lows, off about 3%.
Oil Market Is Getting the Roil Treatment
Away from stocks, green paper was weaker, for reasons having to do with the Fed’s storyline starting to unravel and too many people positioned for it to hold together. Oil dropped about 6%, and I have no decent explanation for yesterday’s rally or today’s decline, even though I have read all the reasons that have been written, but volatility in the oil market has been quite substantial, to state the obvious.
Fixed income was higher, but it continues to act less perky than one might expect, given the weakness in equities. This may be because China is selling, or some other reason. For those of us looking for sanity to break out, we can all hope that the bond market is starting to have questions about central bank policies, but I think it is far too early for that. Turning to the metals, they were mixed, with gold slightly higher and silver slightly lower.
Included below are four 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.
Bonus Q&A
Question: Bill, I have heard from many so called experts on CNBC say that higher oil prices is good for the market. But, I also remember hearing that lower oil was good for the market. Which is it?
Answer from Fleck: “I’d say lower is better for the economy, but not nearly good enough to offset everything else that is wrong, as people have claimed.“
Question: What percentage drop in U.S. Markets will spark next round of QE?
Answer from Fleck: “I don’t know, we will just have to see.“
Question: Nasdaq now down for the year. Watching CNBC :/ about 11:40 EST today. They’re now talking about no Fed hike, possible QE4, possible worldwide slowdown.
Answer from Fleck: “But they remain clueless to the fact that QE does not work.“
Question: I thought you might enjoy this from David Stockman:
“When it blows, Fischer, Yellen and the rest of their posse will profess total surprise, and start blathering about the outbreak of some kind of invisible financial ether called “contagion”. No it isn’t “contagion”. The whole complex of booby-traps now embedded in the financial markets——trillions of ETFs, record junk bond and CMO issuance, rampant gambling in the OTC “structured products” market——is the handiwork of central bank destruction of the money market.”
Sounds awfully familiar! 🙂
Thanks.
Answer from Fleck: Yeah, it does. He was a reader of this column for a long time. 🙂
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