As stock markets top, here is the latest on key markets, including gold & silver.
By Bill Fleckenstein President Of Fleckenstein Capital
July 5 (King World News) – Overnight equity markets were net-net lower while we were out on holiday. Our market joined the downside today by losing about 0.75% in the first couple of hours of trading, with the Nasdaq a bit worse, led lower by chip stocks. Over the course of the day the market slid some more and with an hour to go had lost about 1%…
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Away from stocks, green paper was mixed: very weak against the yen while higher against most other currencies, with the pound hitting a new low for the last 30 or so years at around $1.30. Oil was clobbered for around 5%, and naturally fixed income screamed higher, as did foreign debt markets. Notably, Germany and Japan hit new all-time lows in 10-year yields of minus 16.4 and minus 26 basis points, respectively, although the Swiss still “lead” in the NIRP sweepstakes at minus 68 bps. Is it any wonder that more Swiss are buying gold given that absurd level of punitive interest rates?
Turning to the precious metals, they were lower today after having been higher on the Fourth of July. In fact, silver (which closed Friday at around $19.75) traded as high as $21, though today it traded at $19.94 (with an hour to go). As for gold, it was about $9 higher yesterday and added about $4 more today.
I really don’t see how the U.S. stock market is going to hold together through earnings season, but we will know for sure pretty soon. Of course, any sort of equity market weakness on the order of 10% to 15% is most likely going to be met with more easy money on the part of the Fed. Thus, I am being extra picky about setting shorts.
Housekeeping
Here is a link from an interview I did on Friday with Eric King primarily about precious metals and a potential bond blow-off, which I think is quite timely.
Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.
Bonus Q&A
Question: Hi Bill, now that we appear to be in a new gold bull market I was wondering if you use stop loss orders on your long gold mining positions and if so what per cent below the current price? Or do you use a mental stop only? I did a search but didn’t find anything. Thanks.
Answer from Fleck: “No, I don’t plan on doing that. Don’t know why you would. You’ll get taken on every correction.”
Question: When I heard you mention Coeur in your KWN interview I went to see what Don at goldsilverdata.com thought about them. (I feel it’s ok to share his work with you as he told me he was giving you a trial membership.) Here’s his analysis:
Don’s Summary (from last analysis – 06/05/2016)
Coeur Mining has underperformed since 2006. They have to reach $70 per share just to get back to where the share price traded in 2006. However, they have been aggressive, purchasing Orko Silver, Paramount Gold, and a mine from Gold Corp. In 2016, they will produce about 16 million ounces of silver and 300,000 ounces of gold. That is substantial and with rising gold and silver prices, cash flow could reach $1 billion annually. At 10x cash flow, they could reach a $10 billion market cap. That would make them a potential 5 bagger from their current $1.3 billion FD market cap. The stock has been surging, rising from $2.48 to $8.34 in the past few months.
I look for this stock to do well, but it’s a bit pricey after the recent run. I hope their new management team focuses on improving their balance sheet. The only way they are going to reward shareholders is if they lower their costs and reduce their debt. If Coeur can pile up cash, this stock should do very well. For silver producers, I have been down on CDE. However, they seem to be hitting their stride. Let’s hope they can pull it off and reach a new high.
Before you get too excited that stock is going to blast off, they do have debt and cost issues, which have impacted the stock price. They have $500 million in debt, $175 million in cash, and are losing money. Their all-in costs are around $17 per oz for silver and $1250 for gold. So they are a high risk investment at low gold and silver prices. However, if silver prices take off, they will benefit big time.
Answer from Fleck: “Don’s analysis is pretty superficial. Orko needs something like $30 silver to make it work, for instance. That billion-dollar cash flow is a huge stretch. Just do the math. Current it is 100mm-ish, $10 x 25mm oz. = $260mm. Add an extra $100 for gold = 30mm, that adds to $300mm. So his number is for like silver north of $40 and a large move in gold as well (excluding any debt repayments). And 10x $1 billion is a fantasy. Management of this company has been a serial capital destroyer as well.”
Question: Hey Bill I’m curious to know which ‘bull’ market you think is closer to expiration. US stocks or US fixed income? From my reading of your daily raps my sense is your choice has been US equities. Do you still feel that way? If US equities sold off I guess US fixed income would hold in or rally even further thus prolonging what feels like a legitimate bubble there being popped. (though who knows what would happen in this crazy market) What’s curious to me is that the PM’s seem to have fully sniffed out global CB money printing and incompetence but there has been no reaction in global fixed income as of yet.
Answer from Fleck: “Stocks. The topping started process 18 months ago.”
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