With the Dow and the Nasdaq surging along with the U.S. dollar, today one of the greats in the business sent King World News a fantastic piece about the chaos in Greece and why this time around the global collapse will be different than 2008, plus a remarkable bonus Q&A that includes everything from the Greek tragedy to gold and silver.
By Bill Fleckenstein President Of Fleckenstein Capital
July 1 (King World News) – Last night China hit the skids again, as that market dropped about 5%, and the situation there is obviously looking quite dicey. Meanwhile, yet again, hopes for a Greek deal saw Europe rally around 2.5% before backing off a bit (even as no miracle occurred), ultimately closing roughly 2% higher….
Continue reading the Bill Fleckenstein piece below…
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Greece-ing the Skids
How anyone could think a deal will be done before the referendum on Sunday, I don't know (then again, I am no expert on Greece, though I have tried to read everything that seems pertinent lately). Based on everything I've seen, there's no way anything could possibly be resolved before a vote, and my gut feeling is that the Greeks will vote no.
However, it would seem that most everyone is certain this is going to work out just fine. At the moment, this is more of a mental exercise for me, as I'm not making any investments predicated on the outcome in Greece, though obviously more hostility with the EU — and whatever fallout that creates — won't be good for anyone.
"One Must Not Try to Trick Misfortune"
The positions that I have initiated in the last month have been puts and shorts in the tech sector (Intel, Micron, Seagate, Qualcomm, etc.), and by now everyone should know my reasons why, i.e., expectations are far too high and not only do I not think we will get the hockey-stick rebound folks are looking for, I think it is going to be even worse than people expect. And none of that has anything to do with Greece or China, though to the extent there are developments in those places, they are more likely to be negative than positive.
Turning to the action, preopening the SPOOs were about 0.75% higher, as hope was springing eternal that a Greek deal could be found (and that hope was more important than China). As I said two days ago, why anyone would want to buy SPOOs, given the environment we have, is beyond me, but especially buying because you thought something positive would happen in Greece momentarily is really nuts. After the initial rally, the market started to drift, but by the end of the day it was still 0.5% higher.
Away from stocks, green paper was quite strong, fixed income was weak, oil fell 4%, while silver lost 1% to gold's 0.4%.
Included below are two questions and answers from today's Q&A with Bill Fleckenstein. The questions are from his subscribers and they get to read Fleckenstein's answers every day.
Bonus Q&A
Question: Fleck: Greece is not Lehman as it is too small. We all know that Greece will go to the "death path" after exiting the Eurozone. It creates a very small shock only. It is NOT the worst. The worst is: Greece bounce back after several quarters like Iceland and proves that it is "better" to exit Euro. Then Portugal, Spain, Italy, and even France threat to leave. It is the Lehman and AIG moment, right? Is my macro analysis correct?
Answer from Fleck: "To be clear, Lehman wasn't "Lehman," i.e., the cause of the disaster in 2008, it was just a casualty of the collapse of the real estate/credit bubble collapse. The bigger problems are the second-half expectations here, and maybe the China market. If those countries were to leave, that would be a very big deal, but it is not a high probability to occur anytime soon."
Question: This is just a quick comment on Greece, if it helps. I am just back from Ireland and the focus on the goings on in Athens there is very intense. Personally, I don't think Greece will either vote to leave the euro and, since the wording is unclear for Sunday, even if it is a "no", I still don't think they will. Why? Because the politicians in other countries will finally twig to the mayhem that will follow. Also, to the potential for a change in government in Spain later this year with Podemos likely to benefit.
Over here, people don't seem to get the geopolitical risk associated. At any price, Greece is worth keeping within the EU. If exiting the euro would increase the chance of their exiting the union itself, this would be a mega disaster. Anybody European, like myself, is only too aware of how exposed the continent is and how near trouble it could find itself. Let alone the fact that Athens would accidentally on purpose open the floodgates to refugees and wave them into other parts of Europe. I find the whole thing very sad. Such a shame it has been let get to this point. Not good for any of us.
Answer from Fleck: "Kicking the can, as the Greeks have done forever, and so many other G7 countries have done (and continue to do as well), just lets the problems get to immense proportions, such that they become extremely painful to deal with."
It's Different For Gold Today Than It Was In 2008
Question: Bill, the second half of 2008 saw gold whacked by 25% while the markets were imploding as everything got sold in a scramble for liquidity. How likely is it that gold's current (in)action is due to similar liquidity concerns? I read frequent reports of large scale physical buying in Asia and now Europe, but wonder if this isn't being offset by selling (forced or otherwise) here. On the plus side, this is giving me a chance to bolster my physical holdings at decent prices.
Answer from Fleck: "Lots of hot and other money was long gold. It had run up for seven years. It has been flushed for the last three years. I t won't be like 2008 again for gold. That is the wrong road map IMO." ***To subscribe to Bill Fleckenstein's fascinating Daily Thoughts CLICK HERE.
***ALSO JUST RELEASED: DANGER: Major Warning Signal Is Now Flashing RED! CLICK HERE.
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