As we move through mid-October trading in global markets, today Bill Fleckenstein discussed the recent weakness in the gold, silver, and mining share markets.
By Bill Fleckenstein President Of Fleckenstein Capital
October 13 (King World News) – The Chinese yuan upset the apple cart and caused a spill in world equity markets, as it fell for the fourth day in a row and is now at the lowest level since late 2010. It was interesting that the prior weakness earlier this week was largely ignored, although that obviously was not the case last night. World bond markets, on the other hand, bounced, as I suspected they would once we saw some equity market weakness. Again, the real question is whether the bond market is trying to change its trend or is the recent decline just been noise, and I don’t think we will have a sense of the answer until we see how bonds respond to a lower equity prices and ultimately to QE4…
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Pop Quiz
Having said that, clearly we need a turn in equities to begin to test out any sort of thesis and we are now (maybe) finally getting it. The stock market has built up a very brittle structure on a combination of hot money in the form of people chasing performance or trying to find yield, layered onto indiscriminate ETF buying, and algo-related nonsense. Despite the brittleness and potential for trouble, however, the structure has not been tested since it almost broke last January before recovering. Now the equity market is once again in a very vulnerable spot and the only question is whether we can really see it accelerate to the downside. Intellectually, it ought to, but until it does that doesn’t matter.
In any case, turning to the action, the market lost about 1% in the first hour before chugging higher to get back to flat, only to sell off in the last half an hour, closing with the modest losses you see in the box scores.
Confidence Game
Away from stocks, green paper was a bit weaker (once again the whole concept of the Fed being able to hike rates because its policies are successful will be called into question, and that most likely will cause problems for the dollar, since it is the FX market’s fantasy version of the SPOOs). Said differently, the SPOOs and the dollar are where they are because of the perceived competence and success of the Fed, with confidence being widespread despite the evidence that they are total failures, and serial bubble blowers as well.
Turning to fixed income, it staged a decent rally, oil was flat, and the metals were slightly higher.
Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.
Bonus Q&A
Fleckenstein On The Recent Weakness In Gold, Silver & Miners
Question: Bill – Is there any chance that this current environment will start to resemble Oct. 2012 instead of a normal correction during a bull market as you have stated? Back in October 2012 there seemed a bunch of reasons gold should have been going higher – the price had consolidated over the previous year, QE 3 was just enacted, etc. – yet not only did the price not go higher it instead went on an almost unrelenting 3+ year decline. Why is the period we are currently in, where we have been going through an almost four month price consolidation/decline, not like the fall of 2012. Thanks in advance.
Answer from Fleck: “The correction has done what it is supposed to do. You and others are so worried that the bear market never ended. I would say that the biggest difference besides NIRP/ZIRP and the world slowing down after the bit of acceleration QE3 and the other CBs caused is that from a technical perspective, the 200-day moving average is in a big uptrend, whereas then it had been down and had flattened out (at best) in October before resuming its decline, and now the trend is clearly up.”
Question: Just the reality from Main Street. No inflation? Obamacare is an absolute failure. The reality of ACA/Obamacare, here is my 2017 insurance:
Monthly from $301 to $653
Deductible from $5600 to $7100
Co-Pays from $50 to $100+
Answer from Fleck: “It is like the Fed. A totally failed policy is deemed successful.”
Question:Bill, $SPX -there are bearish divergent sell signals everywhere , from a technical perspective – of course can’t get into details since I don’t have 10 pages , going short right here is as good as an opportunity as going long in February. With a stop at 2170 – there’s about 35 points of risk for a couple hundred , or more ,potential downside profit – with the additional potential break of the Brexit low at 1990. A break of 2120 will be critical. Time to roll your shorts. What does your gut say ??
Answer from Fleck: “Nearly every week for some time now I get a reader telling me the market must break. I see (and have seen) the INTELLECTUAL case for a crack, but it has not really felt like it could get started since last January. Now, again, it kinda feels like the market might be ready to break but IT MAY NOT. Bottom line: be alert and ready to act/press, but don’t be dogmatic.”
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***Also released: This Is Why Weakness In China Is Now Beginning To Concern The Rest Of The World CLICK HERE.
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