On the heels of more wild trading in the Chinese stock market overnight, today one of the greats in the business sent King World News a fantastic piece discussing the Fed Meeting and what will cause a radical shift in global markets, plus a bonus Q&A that covers gold, silver and much more.
By Bill Fleckenstein President Of Fleckenstein Capital
July 27 (King World News) – In overnight markets China dropped between 1% and 2%, depending on the index, but that had no impact on Europe, which was slightly higher. For some reason the SPOOs decided that today was going to be a good day, so they rallied about 0.3% overnight, but by late morning that gain had largely evaporated, with the Nasdaq lower and the Dow slightly higher.
For all intents and purposes, we are close to the end of earnings season, and I would say it has been none too great and certainly unable to power the tape much further, so we can now turn our attention to how the market does in the no-news period….
Continue reading the Bill Fleckenstein piece below…
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This Will Cause A Radical Shift In Global Markets!
Through incompetence and poor policies for the last 15 to 18 years the Fed has nevertheless bolstered the market. Except for the periods where folks lost confidence in the Fed (from roughly 2000 to late 2001 and 2008), as soon as whatever bad news was over with from earnings season, the market usually chose to rally. I suspect that won't be the case this time, as the market seems so ragged and it is probably dawning on folks that their expectations for the second half might not come true. So if it starts to falter, I think that will be instructive as to what comes next.
Turning back to the action, by the afternoon the market was chugging higher and managed to close with a gain of 1%. Away from stocks, green paper was stronger, oil added 1%, and fixed income was a little lower, while silver gained 1% to gold's 0.1%.
FOMC Meeting
I suppose I should point out that the FOMC will be meeting today and tomorrow, but I am not expecting that the post-meeting communiqué will say much of anything.
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: Did you keep your Friday gold/miners? Thanks
Answer from Fleck: "I did, even though they traded horribly."
Question: Do you think the precious metal streaming companies like SLW and FNV are better bets in this current market as opposed to large producers?
Answer from Fleck: "I don't think so. They are too expensive for me. They have held up better (as my costs don't matter to them), but more money will be made in miners once the trend changes, IMO."
Gold, Silver And The Fed
Question: Hi Bill, where do you suppose this idea comes from that rate hikes are bad for the price of metals? I understand the thought process, but there really isn't any history to back that up. In the late 70s, gold rose along with rate hikes for several YEARS. Throughout the 2000s, the same exact thing happened. It was only when the Fed was madly slashing rates that gold corrected. It's amazing that something can be so widely believed without any evidence whatsoever. Yes, gold and silver rose dramatically into 2011 but have since fallen back to 5 or 6 year lows, despite an unbelievable amount of money printing and ZIRP.
I welcome rate hikes because that is when the Fed will really lose credibility. The period of cheap money is when the fantasy is alive and well. It is only when normalization is attempted that everyone realizes what a complete dream it has all been and how unsustainable the "prosperity" really was. Of course, this time around "normalization" might not even require rate hikes. Just an extended period of time with no QE might be all it takes. Nonetheless, the sooner the economy tries to stand on its own without massive intervention, the sooner it'll be exposed as pure fantasy. That's when the metals will go crazy, IMO.
Answer from Fleck: "Lots of BS passes for fact, e.g., "the Fed knows what it is doing!" or 20% moves = bull or bear market, etc." ***To subscribe to Bill Fleckenstein's fascinating Daily Thoughts CLICK HERE.
***ALSO RELEASED: This Is How Absolutely Insane The Stock Market Crash Is In China CLICK HERE.
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