With the Dow closing back below 18,000, today one of the greats in the business sent King World News a fantastic piece warning about a collapse of the Greek banking system and complete chaos, plus a remarkable bonus Q&A that includes everything from the chaos in Greece to gold and what investors should be doing with their money and more.
By Bill Fleckenstein President Of Fleckenstein Capital
June 24 (King World News) – Last night it became clear that the purported Greece can-kick that had gotten everyone so excited on Monday was another air ball (to mix my recreation metaphors). And so the financial soap opera continues. I have made a point about not having an opinion about all of this because — as I have noted many times — whatever compromise or can-kick that occurred would come down to the last minute….
Continue reading the Bill Fleckenstein piece below…
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Of course, it has even been difficult to say what the actual "last minute" is. But it would seem that either the IMF payment on June 30 or the ECB payment on July 20 is liable to constitute a drop-dead date to get something done, and they have to get past both of those dates.
The Total Collapse Of The Greek Banking System And Complete Chaos
Thus, I have not had much of an opinion, nor have I had any interest in putting up any dollars to speculate on an outcome. Nonetheless, I have assumed that a compromise would get worked out, and that still seems like the highest probability event. Having said that, it is not impossible that complacency, haggling, and the inertia of bureaucracies, not to mention opposing opinions, prevents something from getting done and a default takes place, which would almost certainly guarantee a collapse of the Greek banking system and all sorts of chaos.
I mention this train wreck outcome because, after all the dithering and time this has taken, it is possible that even if Greek prime minister Alex Tsipras agrees to German/EU demands, he may not be able to ram them through his own parliament.
Deus Ex Machinations
The net of all this is that I don't want to waste too much time thinking about or factoring in a Greek outcome because, even though it does seem that the possibility of a train wreck has increased, I'm not exactly sure which markets would do what, but I am convinced stock markets would likely take a hit given the current environment of complacency, high expectations, and lack of QE in America.
However, the apparent stumble in a deal for Greece had virtually no impact in Europe and none here, though the indices did spend the early going slightly lower. Speculation remained alive and well, however, with today's exhibit being the fact that Netflix stock added about $5 billion to its market cap thanks to the company's decision to affect a seven-for-one stock split, but it then flipped over to close lower.
Selling Will Become Violent On The Downside
The early-going selling led to even more selling and the market declined about 0.75%, closing on the lows. It is really starting to feel like one of these days in the next few months trouble is going to start, and it will get violent quickly. Away from stocks, green paper was stronger, fixed income was flattish, as was oil, and the metals got back to their divergence of a couple of days ago, with silver slightly higher and gold 0.5% lower.
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: Not sure if you are following the Sprott/GTU "saga", but found it interesting that GTU announced today they would now provide a cash redemption feature at 95% of NAV for all investors with no size limit. Given that related CEF is still trading at ~8% discount, wondering if you think this increases likelihood of a similar redemption feature being implemented for CEF. Not sure why these entities have not done so in the past given persistent large discounts to NAV.
Answer from Fleck: "They haven't because they selfishly don't want assets to shrink via redemptions. I doubt CEF will do that unless they are severely pressured."
Question: It would be nice to be able to hold only government -invested money funds, but an older person living off investments cannot invest in just government money funds and PM have stalled for now. Suggestions for those people??
Answer from Fleck: "I'm very sympathetic to your plight, but you have a very tricky problem, i.e., reach for yield and take huge risks in the next debacle or dip into your capital to support your income needs. I'd lean toward the latter because I feel we are so close to a potential dislocation finally, but if that doesn't appeal to you then you must have a bailout plan once things start to get ugly, and at that point you will have to dip into capital while we await the return of some sanity."
Question: So Facebook is worth more than walmart? 500 billion in sales, huge real estate holdings, best distribution aand logistics in the world and oh btw, ability to negotiate and set pricing for goods vs 12 billion in sales and a bunch of air. Seems a whole like like 1998 again….what am I missing?
Answer from Fleck: "Nothing at all. We just don't know when this lunacy will end."
Question: Hi Bill. James Altucher is a highly regarded pundit in some circles these days. One of the things he wrote recently was. .."Inflation is a myth. Supposedly we've had mostly inflation for the past 100 years. A $200,000 computer from 20 years ago is now in my pocket for $400. Some things cost more some things cost less."
The level of analysis and critical thinking from so many 'smart' people these days is baffling. One obvious problem with his statement is that computer from 20 years ago was actually used for productive purposes, not to just watch videos of cats and checking the weather.
Answer from Fleck: "He isn't highly regarded by anyone who listened to him in past bubbles, and that bit of "analysis" is laughable. Technology has been a source of deflation forever, but hasn't stopped the inflation we have had."
Question: Hello Bill: Bloomberg published an article this morning on underwriting silliness going on in the auto business. Here is a take from the real world as it applies to my 77-year old father.
He was recently in a car accident that totaled his old vehicle (he was at fault). He makes $30K/year via a federal pension and has little to no assets. He was able to buy a new Nissan Sentra at $1500 below the sticker price, but the kicker is that the dealer offered him a no money-down, zero percent interest rate "financing" deal for 5 years. I told him he was crazy not to take that deal.
He figures that he will only be able to physically drive for another 2 years or so, and then will just stop making the interest-free payments and let the repo man take the car. All the risk is with the financing company since he put no money down and will never pay any interest on the loan.
With this type of underwriting, the auto business is eventually going to be in a serious world of hurt. Amazing how history repeats itself!
Answer from Fleck: "Yes, it is amazing and so sad we have to keep making the problems worse instead of ever fixing any of them."
It's Going To Be A Disaster
Question: Bill, no question just a comment to add some more color to the current mindset. About two years ago I left the money management 'paid to play' business after 20 plus years with major wirehouse. I got a buyout in partnership so I took it and ran. I was finding it more and more difficult to invest money of our older and less educated clients in stocks but especially bonds while raking 1- 2% a year (especially when i was not following the advice I was giving having gone to cash gold and miners).
Anyway my father who is 78 and has been invested in the markets with me since 1994 was at my niece's wedding this past weekend. He still has managed money accounts at my old partnership even though I have advised (pleaded) otherwise for the last year and a half. The money managers have gotten scared so to speak with managing individual equities for the most part because they know they are in way over their heads so they have gone the ETF route now (which is lazy and stupid to me at the same time).
I have been attempting to talk some sense into him after his hard work, saving and investing for a lifetime. I told him again I am mostly cash and gold (physical) and select miners. I asked him what his plan was and what he would do if we got a big market decline. His response was "i watch my accounts everyday. I will know when to get out" I rolled my eyes and got another drink. Everyone is so sure they will get out in time. No one has learned anything. It is going to be a disaster.
Answer from Fleck: "Thank you for that great vignette. It is exactly what millions are doing and you are so right in your conclusion." ***To subscribe to Bill Fleckenstein's fascinating Daily Thoughts CLICK HERE.
***ALSO JUST RELEASED: A Stunning View Of The War In The Silver Market CLICK HERE.
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