On the heels of some wild trading in global markets, Happy Thanksgiving to all KWN readers around the world, plus an important message about gold and what to expect next in major markets.
Happy Thanksgiving!
By Bill Fleckenstein President Of Fleckenstein Capital
November 22 (King World News) – As everyone knows, in the last couple of days when there was no Rap the stock market took quite a beating, and I think the way the market has traded corroborates the view that I have shared often over the last few years that the market is brittle and can only dislocate.
Having said that, despite all the pain and destruction in so many high-flyers, the market is only back to about flat on the year, but the drumbeats to get the Fed to back off have gotten louder, and they will continue to get even more “amped up” as the equity market is pressured lower…
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“It’s Just a Flesh Wound!”
A great example of the one-sidedness of markets these days is the way oil has collapsed 30% in six weeks. Being a commodity, oil is not a proxy for the stock market, but this was a very powerful move that occurred with little or no change in the overall investment psychology. Yes, emerging markets and China have seen their stock markets pummeled and perhaps the mood in other parts of the world is quite a bit more sour than here in the U.S., but it seems to me that while folks may be feeling a little dinged up recently, they are all pretty sanguine about how this will play out.
I’m sure we will continue to see violent surges to the upside in the market based on hopes of good news on the trade or Fed front, but I don’t see any possible way for the market to mount a sustained rally until QT has been stopped and QE restarted. Thus, there is quite a long way to go to get any potent relief for the stock market.
Short-Sighted Circuits
Regretfully, given the algo-dominated world we live, there are — generically — fewer clues that a change in the trend may be coming. When markets were more dominated by human decision-making, you could often see dots being connected about what a large move in one market might mean to some other market. For instance, if the stock market cracked hard, people would start to wonder about GDP activity and that would feed itself back into different industries and the way outside markets might trade.
However, now that it seems like algos only react to price and don’t connect dots about what changes in price might mean for the future, we see big moves seemingly coming out of nowhere. That’s what happened to oil, and to some extent in the stock market. I think we will also see something like that in the gold market. There has been enough news lately that “ought” to have caused the gold market to twitch more than it has, yet it has acted like nothing has changed since last since last summer when “everything was fine.” The bottom line is that, prospectively, there may not be as many clues as in the past that a market (or industry) wants to really move before it starts in earnest.
For everyone who is wondering why gold doesn’t act better, I share your frustration, but it is just going to go when it is ready to go. Hopefully, the foregoing discussion helps keep you calm when it doesn’t do what it is “supposed to.”
As for today’s action, the Nasdaq was about a percent higher right off the bat, while the Dow and S&P gained about 0.5%. The proximate cause for the good cheer was optimistic stories about resolution on the trade front and the potential for the Fed to back off from rate hikes in the spring. In the afternoon, the attempted ramp job fizzled with the Nasdaq closing up 1%, the Dow flat, and the S&P fractionally higher.
Away from stocks, green paper was a little weaker. The dollar continues to hang in there, but I believe this rally is on borrowed time (granted, I’ve thought that for a while and it hasn’t been the case yet). Fixed income was weaker, oil was up 2%, and the metals were higher, led by silver, which gained 1.5% to gold’s 0.3%. The miners were fairly strong as well.
Included below are two questions and answers from the Q&A’s with Bill Fleckenstein.
You Have To Be Patient
Question: Well, gold seems not to react, even today, to reports the Fed may stop rates hikes in the Spring. A year o9r so age the gold price was over $100 higher! What’s it’s gonna take to get gold moving? Might I suggest a nuclear war? It all very controlled, manipulated, insane…but I see no other place to park money but in PMs.
Answer from Fleck: “You just have to be patient. Besides, as I type it is up to $4, so maybe it will pick up steam.“
Why Wouldn’t The Government Just Ban Gold?
Question: We know large bills will be eliminated so people can’t keep their wealth outside the banking system. But isn’t a gold coin effectively just a very large bill, so why wouldn’t the government ban those too? Thanks
Answer from Fleck: “Why not worry about it if they try it. It will be an awful lot higher if that is ever contemplated. But gold can be bought in small denominations too.“
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