With people around the world still nervous about moves in global markets, today one of the greats in the business sent King World News a fantastic piece discussing the turmoil with Glencore as well as what this means for gold, miners and other commodities, plus a bonus Q&A that includes questions on gold, mining shares and the action in markets.
By Bill Fleckenstein President Of Fleckenstein Capital
September 30 (King World News) – Asia was roughed up last night, as Japan lost 4% and China dropped 2%. However, Europe was a nonevent, with equity markets there just sort of flattish…
Continue reading the Bill Fleckenstein piece below…
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Yesterday’s poster boy at the whipping post, Glencore, saw its stock price bounce about 15% or so. I continue to read stories — particularly on Zero Hedge — about the ultimate vaporization of Glencore, and while I don’t have any insight whatsoever, the company still has a market cap of about $11 billion (though it also has $30 billion in debt). That doesn’t mean it can’t evaporate, but a lot more damage will need to occur for that to be the case.
“I’m Not Dead Yet”
I did check in with a long-time friend who has been around the commodities business his whole life, and his view is that Glencore is probably going to be OK. He also said that one of the smartest investors he knows is buying the stock. I just offer that up as something to think about in light of the one-sided “death of Glencore” stories and ramifications that I see being trumpeted regularly.
Turning to our market, the SPOOs traded on both sides of unchanged last night and the early going here saw a modest bounce pretty much across the board, although Apple and its “dumplings” (as Fred Hickey has dubbed them) were a bit of a soft spot (which worsened all day, as Apple fell 3%). That most likely is because some investors have figured out that, in all the hoopla over Apple’s 13 million units in initial sales, there was a lot less there than meets the eye.
I saw a pretty accurate account in the New York Times that pointed out that these comparisons are not necessarily “apples to apples” (no pun intended), in that at this time last year, Apple was not selling in to China and this year it is, which is a very big deal if you consider that China Telecom has roughly 800 million subscribers. In addition, this year preorders lasted for two weeks coming into “opening day” as opposed to one last year.
“If the Phone Doesn’t Ring It’s Me”
So while 13 million is nothing to sneeze at, it is probably in fact a disappointment if you look carefully. Given that there is really nothing new about the 6 S (maybe we should call it the “Air Ball”), I would expect sales to taper off quite dramatically and that Apple and its suppliers are in for a rude disappointment over the next couple of quarters.
Turning back to the action, from midday on the indices leaked, which was extra noteworthy. With today being the second-to-last day of the quarter, we often see stocks “marked up.” By day’s end the Nasdaq led the decline and was down 0.5% while the Dow/S&P eked out small gains. Away from stocks, green paper was mixed, fixed income was a bit higher, oil saw a 2% bounce, and the metals were mixed with small changes.
Included below are three 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: Bill, I read with interest your exchange with a reader yesterday on the merits of the basket of miners that you recommend versus the GDX. For readers who may be constrained because of their employment or another reason from owning individual stocks and can only own ETFs, would you recommend GDX so that one can get still have gold miner exposure in that circumstance? Or if given the choice between GDX and not owning miners, would you not own miners? Thanks very much.
Answer from Fleck: “Good question. I think I would still own it, but I would be perhaps more judicious about buying it and probably own less than I would a package of miners of my own choosing.”
Question: The price weakness across the precious metal commodity space is surprising. Platinum price in relation to gold is at or near all time lows. Historically speaking, platinum has been considered an industrial precious metal while gold has been a monetary metal. In lieu of your vision of the future, do you believe that platinum will provide adequate protection against the reckless policies of the Fed and the monetary debasement we are facing ? In your view, will platinum trade at a premium to gold in the future ? As always, thanks for your insights.
Answer from Fleck: “Platinum and palladium will do well once the precious metals as a group are firmly in a bull market, but in the short run it will move based on perceived auto catalyst demand.”
Question: Fleck, how serious is this Glencore issue for the miner’s you recommend such as GG, AEM, NGD? Is this driving down their prices today? Can you provide your reader’s some context on this situation please, thanks so much.
Answer from Fleck: “Glencore has little significance directly to miners, other than it trades base and precious metals. Potentially they could have counterparty risk, “potentially” being the key word. They are weak today because that’s been the pattern. It isn’t due to Glencore, IMO. Also, let me be clear, I am NOT recommending these names or any other. I own them and I like them. I discuss what I do and what I think. What you do must be your decision.”
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