Ahead of tomorrow’s Fed meeting, there are some very strange things happening.
By Bill Fleckenstein President Of Fleckenstein Capital
October 1 (King World News) – Overnight bond markets continued their recent losing ways again last night, with 10-year German bunds now yielding a massive 18 basis points. That doesn’t sound like much, but it is a long way from the -15 bps it yielded a couple of months ago. Meanwhile, world equity markets more or less looked the other way, although they were slightly lower. The early going here saw the market modestly weaker as well, and acting funky enough that I put on a few shorts…
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Around midday the leakage accelerated somewhat and the market was 0.5% lower by early afternoon. With a couple of hours to go, when I had to leave, the decline was about 0.75% (but it felt like it might accelerate, so check the box scores). Away from stocks, green paper was a bit weaker, led by a bounce in the euro, oil lost 1%, fixed income was a bit lower, and the metals came to life, led by silver, which popped 3% to gold’s 1%. The miners similarly had a pretty strong day, just as they did yesterday. I didn’t note Monday’s action because I was suspicious it might have something to do with end-of-the-month tape painting, but obviously that was not the case.
Gold Dog, New Tricks
Given the fact that the Bank of Japan did nothing new and the Fed is expected to make hawkish comments tomorrow regarding a December rate hike, it was an interesting time for the metals to pop. I’m sure today’s action has a number of people scratching their head as to how this could be. And I have to admit, I thought there was little chance for gold to start moving until we got past tomorrow’s promise from Fed heads to hike rates, assuming the data continues to be, in their words, “strong enough” (a phrase that is naturally open to subjective interpretation on their part). Having said that, I don’t feel there is going to be a hike because I don’t think the stock market or the economy are going to cooperate.
Make It Stop
There is also the wild card of the election next week and despite the mainstream media and the polls suggesting that Trump is a long shot, I think the tally will be much closer and his chance of winning is nontrivial, although certainly not expected. I mention that because, were Trump to win, I think a lot of markets would be put in motion.
The stock market has been an accident waiting to happen, and considering how much Wall Street seems to be enamored of a Clinton victory, an upset would probably be enough of a catalyst to send the indices tumbling, which by extension would be a positive for gold — and take a rate hike off the table. On the other hand, in the event Hillary wins, I don’t think the stock market could really go up much.
In any event, I don’t want to get into too much of a discussion about what is liable to happen, as we will have the data in a few days and can decide exactly what to do in the wake of it from a stock market perspective. Besides, a precious metals position can do well under any number of potential scenarios we may see, and they may have already discounted a rate hike, which we probably won’t get.
Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.
Bonus Q&A
Question: If the bond market has “topped”, isn’t it irrelevant who wins the Presidency. In other words the bond market will be in full control and politicians will be late and simply be responding with desperate measures?
Answer from Fleck: “Yes, the President is irrelevant to a large degree versus the bond market.”
Question: Dear Bill, Happy Halloween! If you were going to dress as something scary for Halloween would it be– a) deflation, b) a creepy clown, or c) one of the presidential candidates. Of course b) and c) aren’t mutually exclusive, since clowns can be either gender…
Answer from Fleck: “If I was going out to a party, I would dress as Mr. Politically Incorrect, and I’d try to wear a small bit of any/every costume that is deemed to be “offensive,” (i.e. part Chinese, Japanese, black, Arab, gay, trans, Indian, Mexican, angry clown, Hitler, etc.) I am so sick of microagression and related censorship. We have a right to free speech in this country, but there is no right to “not be offended.” People need to get over themselves. We have far bigger problems in this country than being offended.”
Question: Yesterday you wrote “as the belief that the central planners have accomplished what they set out to, nothing can go wrong, and the election will go whichever way it needs to for us to live happily ever after.” I think the S&P 500 being flat for 22 months with fits and starts says something doesn’t it? Frustrating for bulls and bears alike.
Answer from Fleck: “Yeah, it does say something, which is, “without QE, the stock market can’t go up.”
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***ALSO RELEASED: Today’s Upside Move In Gold Is Nothing Compared To What Is Coming CLICK HERE.
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