With many people wondering what’s next for gold, Bill Fleckenstein addressed the fact that so many bulls are looking for a pullback.
By Bill Fleckenstein President Of Fleckenstein Capital
March 10 (King World News) – Today’s big news was the fact that Mario Draghi unveiled another bazooka, as the ECB dropped its overnight deposit rate from minus 0.3% to minus 0.4%, increased QE from around $60 billion to $80 billion per month, and will now buy corporate bonds…
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That news precipitated a rally of between 2% and 3% in European equities and helped drive our stock market about 0.5% higher through midday, though beneath the surface anything with a big short position or decent amount of beta looked to be even stronger early on.
However, the afternoon was spent in the red. After European markets all reversed from up a couple of percent to down a similar amount (led by the German DAX), so did U.S. markets, but a late rally trimmed a roughly 0.75% loss to the tiny ones you see in the box scores.
Death By a Thousand Paper Cuts
Away from stocks was where the real surprises were. The euro was 2% stronger versus green paper, an outcome that I imagine had to shock most people. Whether that is a clear indication that the dollar is done with its couple-of-years Fed fantasy rally it is too early to say, but it is interesting that the latest round of both the Bank of Japan’s wild-eyed policies and now Draghi’s have seen their respective currencies move higher rather than lower.
As for the other outside markets, oil lost 1%, fixed income was lower (European bond markets also saw reversals from early strength to lower closes), and the metals came to life, with silver gaining 2% to gold’s 1.5%, while the miners were fairly strong as well.
It is never possible to know for sure when you are liable to get a correction or how violent it might be, especially with the metals, but I have been amazed at the number of supposed bulls that are absolutely certain that the gold market needs a correction of some decent magnitude. If that attitude is as pervasive as it seems, that big of a drop is unlikely until we get further down the road and more people are forced to capitulate.
Stuck Between a Precious Metal and a Hard Place
On a related note, it would appear that the stock market has been able to enjoy a strong rally in the face of no real negative news, or “new” news, for that matter. The question is when we get to Q1 earnings and company outlooks, how will the market handle that information? There is an outside possibility that some data will be better in Q1 due to the weather, but certainly that won’t be the case for Q2.
So for the time being, those of us who are faced with trying to make money as the unintended consequences (and the logical ones) unravel from so many central bank policies that we know don’t work, we really only have the choice of being short stocks, long metals, or short credit, and while I think various credits are in trouble, that is a very specialized area and it is still too early in the disillusionment process regarding the infallibility of central bankers to be short government bonds. Someday that will be a great trade, and the end of the era of the interventionist central banks, but not today (though the negative response by government bonds was at least interesting).
The stock market has very little upside and plenty of downside, but that does not mean it will be easy to capture, nor that it will be obvious in advance when it is ready to slide again. I further believe the next big move will be lower, I just don’t know what will trigger it, though todays negative response to the ECBs action is worth noting.
Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.
Bonus Q&A
Question: COMMENT …Bill, if i am correct, negative interest rates should be a positive for gold, since it compensates for the carry/storage charges of gold. Do you believe negative rates would be significant, or just a minor push?
Answer from Fleck: “It is a continuum. All these CB policies are good for gold, just some much more than others.”
Question: Hey Fleck – Sold large chuck of my miners this morning for tidy gains but now I’m feeling v naked and exposed! Need to get my clothes back.. =) Thanks for all you for us commoner traders!
Answer from Fleck: “Doing what you just did is very popular. Lots of people will get left behind. Try not to fight the last war.”
***To subscribe to Bill Fleckenstein’s fascinating Daily Thoughts CLICK HERE.
***ALSO RELEASED: ALERT: Legend Warns We Will See Major Turmoil In The Banking Sector And A Massive Surge In Gold In 2016 CLICK HERE.
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