With the global markets on the move and the U.S. dollar surging, today one of the greats in the business sent King World News a fantastic piece warning that a dislocation in global markets is coming, plus a remarkable bonus Q&A that includes everything from the chaos in Greece to gold, silver, what investors should be doing with their money and more.
By Bill Fleckenstein President Of Fleckenstein Capital
June 23 (King World News) – I have spent a lot of time discussing how powerful psychology can be, and today's durable goods report provides a nice example of that. To wit, a Bloomberg headline passed preopening that stated: "Orders for U.S. Capital Goods Rise As Investment Stabilizes." Anyone reading that would suppose there had been a pretty strong uptick in durable goods. However, the data didn't exactly read that way….
Continue reading the Bill Fleckenstein piece below…
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Enjoy the Headline, Reasoning to Follow
The headline number showed durable goods declining 1.8%, versus expectations of 1%, while last month was revised from a decline of 0.5% to 1.5%, and the prior month was revised lower as well. Beneath the surface, ex transportation, durable goods did increase 0.5%, as expected, but last month was reduced from a gain of 0.5% to a loss of 0.3%. Most of the other slices and dices of the data series were weaker when revisions were factored in. Thus, none of the durable goods numbers really read as the Bloomberg headline would suggest, but it does go to show how powerful the perception is that the economy is going to be strong, despite the fact that it hasn't been.
Dislocation In The Markets Is Coming
Investors — in this case, I'm using a reporter as a litmus test — feel so strongly that Fed policies have worked and will work, weak data can only mean that strong data is coming soon. This is why we are finally approaching a pregnant moment in the next quarter or so because expectations are so high, yet the data doesn't support the outcome that those expectations require. When you have a mindset that is drastically different from the facts, at some point you can get a rather drastic change in psychology and dislocation in the markets. Obviously, this mindset has ramifications for stocks, currencies, metals, and to some degree bonds.
As for the action, overnight markets were higher, though uneventful. The market here was as well, albeit just fractionally through the first couple of hours. After the initial strength, the indices backed off to close just barely higher.
Our Big, Fat Greek Waiting
Away from stocks, green paper was quite strong today, mostly because the euro was very weak, so for this five minutes a Greek can-kick is perceived to be bad news for the euro — tomorrow the same thing could be good news. Once the deal is done, it will take a little time to see what the currency markets really think of it (if in fact they think at all). Fixed income was weaker once again, and the metals were lower, with yesterday's anomaly eradicated, as silver declined 3% to gold's 0.75%.
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: Hi Bill, you've mentioned you don't use banks for cash, then what do you use? Do U.S. Treasuries avoid bail-ins? Thanks.
Answer from Fleck: "Government money funds or T-bills."
Question: Bill, what is a "government money fund"? I did a search to no avail. This is a novice question, I suspect. You said you use "Government money funds or T-Bills." Thank you for everything.
Answer from Fleck: "Money funds that only hold government debt."
Question: Hi Bill. What is your current feeling for the metals? Have they finally bottomed or are they headed lower or higher? Everyday I read an article that says there heading much lower but rarely does anyone say the opposite.
It's very frustrating when something you believe in isn't working for you and the pain you endure. I thought after all this time it would have changed. How much more suffering do we have to go thru?
Answer from Fleck: "It seems like they have bottomed and are now stuck in a trading range. However, it is a bit disconcerting that the miners act even worse than the metals. I'm sorry, but I can't predict when this insane mindset will change, I only know that it will, most likely between now and Q3 numbers."
Question: Hello Fleck. Thanks for all that you do. For the average professional person in their 40s, what would you say should be their allocation to various asset classes at the current time?
Answer from Fleck: "Fleck: Sorry, I can't really know what is right for everyone, but I'd say that it is very important now to have gold, cash reserves, and low exposure to stocks and bonds."
Question: It's nauseating how these Fed heads pop up, like today, and literally seem to toy with the markets by saying, well, yes for sure the economy is "strong" and now there's a good chance rates will start up steadily in September. The dollar soars and PMs just plummet, in what seems a never ending bear market now four years old. The moron today said the dollar was strong because of the strong economy. Really? I am well beyond disgust, more like in an impotent rage that taking a toll on my sanity. Sort of. Sorry for the rant but who else will listen. Most people think I am nuts re PMs and other economic matters.
Answer from Fleck: "It is all about perceptions. They think the economy will be strong so the dollar should go up, though today it is more about the euro sinking on the Greece deal. The disconnect between expectations and reality is what sets up the potential for a large mindset shift at some point."
When Markets Start Down The Selling Will Likely Get Out Of Hand Pretty Fast
Question: Bill, correct me if I'm wrong, but I seem to read that a lot of money managers and retail investors still are invested in the U.S. markets, but feel that they can get out of the market without taking too much losses when the inevitable crash comes. Does this mean we should expect a lot more selling pressure than previous years when a bear market begins as there will be a lot less people on the buy side of the market? Thanks in advance for your insight.
Answer from Fleck: "Sort of, I think the fact that sentiment is so lopsided and that this party has gone on so long unchecked means the potential for a dislocation is very high, and when the market starts down aggressively the selling will likely get out of hand pretty fast." ***To subscribe to Bill Fleckenstein's fascinating Daily Thoughts CLICK HERE.
***ALSO JUST RELEASED: A Fascinating View Of The War In The Gold Market CLICK HERE.
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