As panic continues to engulf global markets, today a legend warned King World News this has been a long time coming, there is no saving this market and the carnage will only get worse.
Eric King: “The fantasy is coming to an end but this day had to come, right?”
Bill Fleckenstein: “You’re right, it had to come to an end. One of the hardest things for people who aren’t investment professionals and even for many investment professionals to understand is how something (an investment strategy) that is so clearly destined to work can sort of lie there and not respond and not do what you think it ought to do for as long as this insanity has gone on…
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“What I’m particularly referring to there is how well and how long the stock market managed to levitate on the back of not much more than outright monetization.
The Gigantic Suspension Of Disbelief
The first couple of years after 2008 there was a snapback after they stopped the carnage with all the programs and government bailouts and money printing. But from 2011 on, when QE3 started, that’s when we really had a gigantic suspension of disbelief. That’s when the vast majority of people really concluded, ‘Gee, these guys really know what they are doing and it’s going to work this time.’ They didn’t stop to think that it was these very same policies that got us into this mess and all we do is keep pursuing the same strategy in a bigger and bolder fashion.
But nonetheless, it’s taken quite some time for the ultimate failure of this fantasy to start to unfold. Now, it’s not the 25 basis points that is breaking the market. They stopped QE 14 months ago and the market kind of went sideways. So the top took about a year to produce on the major averages, but beneath the surface lots of stocks have been weak.
This Has Been A Long Time Coming…
The economic data has been pretty damn poor considering rates have been zero for 7 years and we monetized $3 trillion here in the United States and the same thing is going on in most of the G7 countries. So the economic recovery has been nothing and this has been a long time coming.
But China Is Being Blamed For The Panic
You couldn’t predict when the market break was going to occur but we kind of got some hints of that last year and the way the market has broken in January. Now, people here want to blame this market break on the North Korean hydrogen bomb or the Chinese devaluation and their stock market plunge. But China’s got a misallocated capital and debt problem — that’s we have and that’s what the whole world has. China has a different variation than we do and in some ways they are better than us — in some ways they are worse than us.
This isn’t about China. China is getting blamed because it’s the spark, right? But meanwhile you see that credit spreads are widening, junk bonds have collapsed, the oil patch is a wreck. What do you think is happening to all these insurance companies and pension plans that reached for yield in different credits? And what about the poor bastards from the public who felt they had no choice and felt they had to reach for yield and buy stocks?
The bottom line is that this misallocation of capital has gone on for so long that people look at individuals like Jim Grant, Fred Hickey, or even me, and people would laugh at us. I’ve gotten quite a volume of hate mail where people say, ‘You’re an idiot. Why do you keep saying this stuff?’ Well, you don’t know how long it will take for the chickens to come home to roost, you just know they are going to have to.
There Is No Saving This Market – QE4 Is Coming
So we’re at that moment now, and it’s liable to get quite a bit worse because there is no saving the market. The numbers have been bad, the speculation has been high, and the world economy is getting worse, but the Fed can’t come to the rescue until global stock markets break and break hard. Then we’ll have QE4 and in that phase we will have to see how well the Fed is believed, what they do, and what we think the ramifications will have to be at that time.
The Carnage Will Play Out Faster Than People Think
There’s no guarantee that people are going to believe the central banks because in 2008 they didn’t believe them all year, and in 2001 – 2002 they didn’t believe them. Right now they still seem to have total confidence. So the stock market has been an accident waiting to happen and now the accident is happening, and the carnage is going to play out much quicker than people think.
Having said that, this is going to be a two-step trade, right? The first is going to be the big break in the stock market. Then the Fed is going to do what it’s going to do, and then you’ve got to see what you want to do next.
As It Pertains To Gold And Silver…
As it pertains to the precious metals (phase two of the trade), they have been hated and avoided because nobody thinks they need them when the central banks are in control. So they are basically the flip-side of the confidence trade that’s driven stocks to the moon.
It’s no coincidence that as the market has broken badly at a time of the year when it’s not supposed to, suddenly gold has started to move higher. And what will happen is gold will start to go up and it will finally catch a bid and start behaving better.
Gold will start to trade higher once again on news that used to make it surge and people will come out of the woodwork and try to own it and there will be a gigantic scramble. Has that process started? Most likely it has. It’s also worth noting that some of the miners are finally acting better.
So we are going to see both sides of the trade start to play out at the same time, but they are all different expressions of the same thing. Gold is a way for people to say, ‘These policies are crazy. I know what central banks are going to do and I can own this in order to protect my capital and make money. The stock market only went up because people believed in these idiots and that trade and that belief are now coming to an end.’
So people can express their doubt in what central banks can do by being short stocks or being long gold. I’ve currently got both sides of that trade on. Anyway, I think that’s the longest answer I’ve given to a short question in my career.” ***To hear legendary Art Cashin’s take on the gold market and his stunning 2016 predictions CLICK HERE OR ON THE IMAGE BELOW.
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