On the heels of a rally in the gold market, interesting things are happening in the mining sector.
By Bill Fleckenstein President Of Fleckenstein Capital
February 23 (King World News) – Overnight markets were essentially all slightly lower, which dragged the SPOOs down a bit as well. After opening the market made an attempt to rally, but that quickly fizzled and the indices were about 0.75% lower after the first hour. Over the course of the day the market kept leaking and eventually lost a bit over 1%, with the Nasdaq even weaker. Was that it? Did the rally fail? I don’t yet have a big opinion, but I am alive to the fact that could be the case…
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Bill Fleckenstein continues: Away from stocks, there was a decent amount of motion, as the yen went on a rip to the upside with the dollar higher against most other currencies. In other words, the yen was screaming against nearly every other piece of colored paper, which is mind boggling when you think about how hard Japan is trying to debase its scrip.
The Noisy Market Gets the Grease
Turning to the asset that is supposedly driving the stock market and everything else in the universe, oil was weaker. I still can’t get over how the mainstream media attributes nearly every move in every market to the price of oil when its trading range recently has been nothing more than noise, a pattern which is likely to continue over the next few months.
Precious metals were higher, with silver gaining 0.5% to gold’s 1%-plus, and the miners were firm as well, with the exception of Pretium and MAG Silver, both of which announced deals. Prospectively, it will be instructive to look at the performance of these two securities, as MAG Silver did a bought deal (10% in the hole) and Pretium announced a marketed deal, though it did price it this morning. In my opinion the reason for the quick pricing was the fact that they found some buyers fairly quickly.
While these two were similar in terms of security pricing, my belief is that Pretium will trade much better than MAG, because bought deals always dislocate the share price for some time. In the case of Pretium, the $120 million it is raising is the last cash that it needs to complete its Brucejack project, although I don’t know what the big rush was to get it done. Perhaps so many people are so convinced that the gold price will collapse, they wanted to close as soon as they could.
In terms of reasons to own gold, I would call attention to the latest video on Real Vision (subscription required), where my friend Grant Williams interviewed his business partner, Raoul Paul. It was excellent and will help people realize how dicey the macroeconomic framework is the world over, from the amount of Chinese debt and the implications that might have for their currency to the Japanese debt bomb to the fact that government debt in Europe is hopelessly mispriced.
Cuckoo for Coco Puffs
The one point I hadn’t properly considered before is the impact that the so-called Coco bonds are having on the equity of European banks. Without going into all of the gory details, Coco bonds basically turn into equity under certain circumstances. So those who thought they had fixed income now have equity and either had to sell their bonds or hedge them by shorting the stocks, which is why European bank stocks have traded so poorly.
What many people may not realize is the gargantuan size of the liabilities relative to their home countries, many of which would be too big to bailout, e.g., Deutsche Bank and Credit Suisse, just to pick a couple. Raoul makes the fine point that there are a handful of these “big uglies” out there and what we don’t know is that if one of them gets triggered could that possibly lead to other dominoes falling.
Listening to that interview may not provide completely new information for the average Rap reader, but what you will see is a succinct synopsis of just how dangerous the world environment really is. Thus, it should make it quite clear to everyone why gold is liable to be quite a good investment prospectively.
Included below are two questions and answers from today’s Q&A with Bill Fleckenstein.
Bonus Q&A
Question: Hey Bill, since it’s an election year, is it reasonable to assume that we won’t see anymore QE until a the new President is in office?
Answer from Fleck: “The election is absolutely irrelevant to the Fed easing.“
Question: Hi Bill, I am sure you have noticed that the ETF “GLD” has added over 40 tonnes of gold the last two days.. Do you have any idea who might be taking this huge amount?
Answer from Fleck: “No, I don’t know, and even if I did what would it tell you? Trying to learn who the buyers or sellers are is not a useful exercise, in my experience.”
***To subscribe to Bill Fleckenstein’s fascinating Daily Thoughts CLICK HERE.
***KWN has now released the extraordinary audio interview with Dr. Marc Faber, where he discusses the greatest threat to the world, his stunning predictions for the rest of 2016, gold, and what investors can do with their money right now, and you can access it by CLICKING HERE OR ON THE IMAGE BELOW.
Also, the long awaited audio interview with London metals trader Andrew Maguire has now been released and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO RELEASED: Things Are Continuing To Deteriorate In The Real World At An Alarming Rate CLICK HERE.
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