On the heels of the continued war in the gold and silver markets and an extraordinary move in the share prices of mining companies, today one of the greats in the business answered the all-important question: Will gold, silver and the shares pullback or melt-up?
By Bill Fleckenstein President Of Fleckenstein Capital
April 20 (King World News) – Overnight markets were sort of uneventful, although China did lose 3%. In the Land of Make Believe, a.k.a., Japan, 10-year JGBs closed at a record-low yield of minus 14.6 basis points, while here in America the fantasy continued for the stock market, and nothing demonstrates the machismo and brazenness of the bulls more than the action in Intel. (I had anticipated that Intel would be a very good litmus test for the battle cry that bad news had been discounted and that the market action in the wake of the numbers, depending on what they were, might tell us something about the overall speculative health of the market.)…
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Intel Report Reveals Extra Week-ness
As for its results, Intel is a company in disarray and beneath the surface of the bottom line earnings there is a horror show under way. Intel did manage to win at the silly game of beat-the-earnings-number, but that is rather meaningless in the same way what IBM reported was rather meaningless. Like IBM, Intel fiddled its tax rate and saw inventories grow while showing no growth in the business, as PCs were a disaster, ditto NAND flash, and the supposed growth engine of data centers — nominally reported at 9% — only grew 1% when you adjust for the fact that there was an additional week in the quarter (which also helped with the company’s overall numbers).
Intel has been playing games for a year, as three out of the last four quarters they have managed to surprise everyone with a far lower tax rate than management had guided to. In addition, two quarters ago it changed its depreciation schedule on the QT. It also took a restructuring charge last quarter and one should plan to see many more accounting machinations as it starts to go down the same financial engineering path as IBM, although the latter’s debt is twice as high as Intel’s and it has been playing games far longer.
What Doesn’t Go Down Must Not Make Sense
When they halted INTC and I saw the results I expected it to open down at least 10%, but it traded just fractionally lower. Then today the dead fish lapped up all of the company’s nonsense and within an hour of the opening it had rallied over 1%. Thus, the takeaway so far is that bravado seems to carry the day, as nothing negative seems to matter much. The question now is whether the bulls will be able to keep that up through potentially negative news from Apple. I don’t know the answer, but it makes me glad I don’t have a heck of a lot of short exposure, despite the fact there seems to be no shortage of wonderful opportunities. As for Intel, my puts expire on Friday. Whether I will exercise them I don’t know, but it looks unlikely.
Basking in the glow of shrugging off Intel, in the early going the market was modestly green. From there until about a couple of hours to go (when I had to leave) the indices had gained about 0.5%. Away from stocks, green paper was stronger, oil added 3%, fixed income was weaker, and the metals were higher, with silver adding over 1% to gold’s small gain.
Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.
Bonus Q&A
Question: Hi Bill – as the metals and miners move higher.. which would you say has the greater probability of happening first: a significant correction (overbought, crowded trade, too high too fast…) or a significant move EVEN HIGHER (no position at all, have been waiting for the pull-back that hasn’t come, don’t want to be left behind)? Thank you for all your hard work!
To Pull Back Or Melt-Up, That Is The Question
Answer from Fleck: “I’d GUESS the latter. The pullback crowd to me seems more crowded than the “higher, sooner” crowd. But it is all just a guess. Not to be insensitive, but what have you been waiting for? They aren’t going back to the lows.”
Question: Bill, your call in silver looks good today. What does your silver friend have to say about silver’s prospects now? If silver outperforms would you expect paas over some of the gold miners to outperform (not meaning to sell ngd, gg, aem, etc but adding more to silver focused? Would you make any other changes in your miners or add to silver? Fred’s comments in twtr on cot and how at this level several years ago gold exploded was interesting as both of you seem to say that is far from the key driver of gold annd has maybe headfaked all those who want to buy on a dip to 1200-.
Answer from Fleck: “He is bullish still, as am I. There is nothing new to say. I’m not changing anything. Silver will be volatile still, so be careful.”
Question: Fleck I know you don’t like ETFs such as GDX but this just to help your readers (and me) stick to our gold miners positions. In late Oct 2008 GDX hit a low of around 15. Two months later it was up to 32.5. This was followed by a half month reaction back to around 30. It then progressed upwards with intervening reactions (but with higher highs and higher lows) and reached 43 by June of 2009, eventually reaching 53 by December. Now if only I can remember this and hang on. Thanks for all you do for your readers.
Answer from Fleck: “It’s a new bull market. Don’t overthink it.”
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