On the heels of the Dow surging over 600 and the US dollar tumbling on comments from Fed Chairman, Powell, one of the greats in the business warned that the Fed just blinked.
The Fed Blinks
By Bill Fleckenstein President Of Fleckenstein Capital
November 28 (King World News) – There is no point in discussing the early action because all that matters is what happened after Powell’s speech. The important takeaways from that were that the Fed is on “no preset path” to hiking and that rates were “just below” neutral policy estimates. I believe that folks thought we were a lot further away than he indicates we are, and obviously the stock market decline has had an impact on their thinking…
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The Four Stooges of Grief
Just to add a bit of humor and to show he’s no different from the last three clowns who ran the Fed, he noted that there are, “no dangerous excesses in stocks for financial stability.” That’s sort of like when Ben Bernanke said subprime is “contained” in March 2007, not long before it began to implode.
Shortly after the headlines from the speech hit, markets were “in turmoil” (to use the Bubblevision phrase), but to the upside. Literally within 15 minutes after the news came out the market had climbed a percent and change and was ascending vertically. In the afternoon, the festivities continued, and the market finished over 2% higher with the Nasdaq gaining almost 3%.
Away from stocks, fixed income was a nonevent, oil fell 2%, while green paper saw a line-job to the downside and the metals to the upside in the wake of Powell’s remarks before they started the usual backing and filling. By day’s end gold and silver had gained 1% and 0.5%, respectively. The miners enjoyed a decent rally, reversing an early decline, and it was refreshing to see them do something besides decline.
Only Reverse Gear Will Do
Given the reception Powell’s talk received from the markets, it is possible that the rally that began on Monday could last a little while, but obviously what comes out of the trade talks this weekend could be a large factor in that as well. That said, we must not lose sight of the fact that the absence of rate hikes doesn’t stop QT, and until QT turns into QE the stock market is not going very far, but there is no rush to attempt to tangle with it.
Included below are two questions and answers from the Q&A’s with Bill Fleckenstein.
“The Fed Has Backed Off”
Question: Well Bill, trump said stop and the fed said yes sir!! gold up some and stocks up a lot!! does this blink by the fed change your near term game plan any? thanks
Answer from Fleck: “That isn’t how I see it… The Fed didn’t respond to Trump, but the Fed has backed off a notch at least. I’m shorting nothing, as I noted Tuesday, and the metals haven’t done anything powerful yet to react to… So no, I am not changing any of my plans.”
More Merger & Acquisition Activity In The Mining Sector?
Question: Hi Fleck, With the market still hating gold (for now), and prices continuing to soften, almost barely credibly – and I was just looking at a chart of Alamos Gold as an example, although there may be idiosyncratic reasons in play there too – at what point does M&A become a serious driver of future returns? That is, at some point it would surely make sense for these businesses to start buying each other, if the market continues to fail to price them sensibly? I know we have seen a little bit of this already, but I mean in a much more widespread and systematic way (even PE backed?). I know there are more clear long term drivers for this space, but I just wondered if at some point M&A becomes too compelling to ignore, for those that can access the cash/credit, and indeed if you felt that this could actually be the catalyst for other market participants waking up to the opportunity? As ever, thanks for all you do.
Answer from Fleck: “We have seen some M&A already, and I am certain we will see more… But, at what point does that trigger excitement? I can’t say, I wish I could.”
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***KWN has released the remarkable audio interview with Dr. Stephen Leeb and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
ALSO JUST RELEASED: Powell Speech Ignites Stocks And Gold Market CLICK HERE TO READ.