On the heels of the Dow trading near the 18,000 level and the Nasdaq nearing 5,000, today one of the greats in the business discusses today’s action, and also included are some questions and answers about the market, precious metals and the mining shares.
By Bill Fleckenstein President Of Fleckenstein Capital
May 25 (King World News) – The worldwide equity party continued overnight, with the exception of China, and it took our stock market no time to gain about 0.75%. Despite all the hoopla many people may not realize that the S&P is just barely green on the year, though beneath the surface there have been some mind-numbing moves higher in various tech names, as well as a fair-sized rout in many industries, such as retail…
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Waiting On the (Short) Sidelines
I really have no explanation for the recent spirited rally, but as I have noted many times it has not paid to try to fight this very much. Accordingly, in the last few days I have reduced my small short position. What would it take to make me get active again on the short side? Some sort of market action that I recognized as indicating a move to the downside was about to commence, or some sort of catalyst I could conjure up, neither of which I see at the moment, though that could change at any time.
As has been the case for the last few sessions, in the afternoon the rate of ascent slowed and then reversed a little, such that the market closed about 0.75% higher. Away from stocks, green paper and bonds were slightly lower, oil gained 2%, and the metals were mixed with gold initially another 1% lower and silver flattish, but they rallied to close with a 0.2% loss and a 0.5% gain, respectively.
Calling the Shot In the Dark
For what it’s worth, today I bought some calls on gold and a couple of miners, not because I felt like that market had turned, but because I felt like the decline had been so severe that I wanted to take some action and used calls to minimize my risk. As I put these trades on it was not because I had a lot of confidence they would work, but rather just a blind stab I decided to take.
Bonus Q&A
Question: Just trying to make sense of this rally. Do you think the strong Census Bureau new home sales report, 619,000 vs expectations of 523,000, is a sign that the US economy is strong? (Another factoid for Federal Reserve to rationalize a rate hike.) Is this a technical, too many traders and hedge funds on one side of the boat, rally? Morgan Stanley reports hedge funds are at lowest level of being long in 5 years, except for this year’s February lows.
Answer from Fleck: “My advice is stop trying to make sense about something that doesn’t have to make sense. We are dealing with emotions and massive worldwide money printing. It is a dangerous, though unpredictable, mix. I don’t know why the market has vaulted higher in the last few days, nor does anyone, I don’t think. The market is quite often not even remotely rational.”
Question: Citi has suggested gold will slide under 1000 given the Fed threats to hike rates in June and beyond. This is despairing. I thought us gold investors were out of the woods! Are you worried at all about this recent slide, which has continued today. ??
Answer from Fleck: “Am I worried because Citicorp has a negative opinion? No. Look, corrections aren’t fun, period. They test your resolve, but that is part of the process.”
Question: Fleck: Do you think gold miners reach a relative level that makes holding physical a better investment? And if so, how far do you think that point is from here? Do you even think of it that way? Thanks
Answer from Fleck: “Yeah, at some point they will probably be too expensive (i.e. they will actually discount a much higher gold price), and gold itself will be better. I have had many years in the past where I owned lots of gold and few miners… But we are not there yet, IMO.”
Question: Dear Bill: I read where the last two PM bull markets – 2000 & 2008, both had 20% or so corrections 4 months into the new bull. Assuming we are down a little now, if we correct 15% more or so in the near term, will you hang on to all of your exposure all the way through the correction? Take your big PAAS position, could you stomach another 15-20% down? Thanks for the insights.
Answer from Fleck: “Some of your data is spurious and isn’t really accurate, i.e., 2008 wasn’t a new bull market. If I knew we were going to drop 15% to 20% I’d cut back, but that is my point. I don’t know that nor do I think it is likely, hence my trading. If I’m wrong I will have to stomach it, but I don’t expect I will be. That is my decision. If you feel differently you must do what you think is best.”
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