On the heels of the Dow falling 162 points, today one of the greats in the business sent King World News a fantastic piece warning that the crash-prone stock market is now hanging by a thread but gold is a different story.
By Bill Fleckenstein President Of Fleckenstein Capital
December 8 (King World News) – Obviously there was a fair amount of motion during the two days I was traveling. However, Friday’s mindless ramp job higher was erased by yesterday’s reversal and today’s early weakness, but with the indices and the market more than 1% lower this morning, buyers showed up, as this was the level we bounced from last Thursday. Thus, after an extremely ugly opening, by midday the losses had been cut about in half, with a strong bid from the get-go in the tech sector…
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They’re Not Picky
It would seem that everyone who is puking anything energy-related or any other unwanted stocks has responded by piling into tech. And while it may have been the port in the storm, it wasn’t so much the high flyers necessarily, as many chip and biotech stocks were strong as well.
Why anyone would want to own GDP-sensitive companies like chip stocks, given what is taking place in end markets and the weakness in world GDP, is beyond me. They are going to be spectacular shorts when the tape finally decides to roll over, but so far they seem quite resilient. Chips are the area I like to watch for shorting (though that doesn’t mean there won’t be other targets), so my M.O. is usually to start out picking on tech stocks, for a variety of reasons.
Catch a Falling Sword
It really feels to me like the market is just hanging by a thread. What will sever that thread and when I can’t say, but I don’t believe I have ever seen a market structure that feels this artificial and crash-prone.
In any case, the Nasdaq led the market, as it turned slightly green and the S&P/Dow cut their losses in half to about 0.5%, which is where they were with 30 minutes to go (when I had to leave). (I wouldn’t be surprised if the last half-hour turned out to be weak, however.)
Away from stocks, green paper was weaker today. Obviously, there was a huge move lower in the dollar, as the one-way positioning of bullish dollar trades got hammered on Friday (though they did a bit better yesterday).
Pump and Circumstance
As for crude, everybody knows it was smoked after an OPEC meeting where nothing occurred (surprise, surprise). Over the years I have made no secret of the fact that I try not to have an opinion on oil, for two reasons: (1) it is an OPEC rig job, and who wants to be involved in anything that is rigged, even if it has worked for a long time, and (2) at the margin, demand from China was an important piece of the puzzle, and we all know that Chinese data is suspect at best.
Thus, I have not wanted to own anything that is GDP-sensitive because one thing I knew for sure is that we were very unlikely to get any substantial GDP activity out of all the money printing. Yes, markets can get kited higher, but all you get out of all these insane policies are just mountains of misallocated capital. It’s just not possible to tell where it is all going to go.
As for fixed income, after having a couple of good days it was flattish today. The metals, which had a big day on Friday as it became a near certainty that the Fed was going to tighten next week no matter what, gave up about half of their big rally yesterday and traded on both sides of unchanged today before closing flattish.
Included below are two questions and answers from today’s Q&A with Bill Fleckenstein.
Bonus Q&A
Question: Bill, if you were to reach a point where your every instinct was telling you that the imminent market meltdown was going to happen within the next week (or two), would you try and get ahead of it or…Would you play it safe and wait for it to come apart before jumping in? I realize you may not be able to give a simple answer to this question but let’s assume this is a very general strategy I’m asking about.
PS There are two reason’s I ask…
1) Things can unravel very quickly when people panic and it seems to me that “chasing” is never a good idea
2) The option premiums for puts will undoubtedly rise significantly when things come apart.
Answer from Fleck: “If I was super confident that I was right, I’d buy puts now, otherwise I’d wait for it to start to set up so I felt I had more data.”
Question: Why do you think gold miners have been acting better as the market has become increasingly certain the Fed is going to hike next week?
Answer from Fleck: “Because that outcome has already been discounted, though they acted pretty crummy on Monday.”
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