With the Dow tumbling 240 points and the dollar weakening further, today a legendary short seller said the stock market is finally set to crater after an 8-year rally, but gold and silver will be the big winners.
By Bill Fleckenstein President Of Fleckenstein Capital
March 21 (King World News) – Finally, there is something to talk about, that being the nearly simultaneous break of some consequence in the dollar and the stock market actually experiencing a decline that looked a little less orderly than what we’ve been seeing, as the market lost about 0.75% in the first hour and a half (after being higher overnight)…
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On Red Alert For More Red
I’m not sure if stocks were responding to the break in the dollar or the dollar and stocks are both exhausted and just happened to choose today to go. For what it’s worth, I don’t think any of the news that the media will cite as a factor in the decline had anything to do with it. It was just time, and it might be the start of something big, but we can’t say just yet, though seeing the action made me pay closer attention than I have since the election, and I actually shorted a couple of stocks to participate, just in case.
In any case, after the initial break, in the afternoon, the rate of decline slowed down until the last half an hour, when it accelerated to some degree, with the market closing on the lows. The Nasdaq led the decline, losing 2%, versus 1%-plus losses for the Dow/S&P. In my opinion, the upside is now finished and stocks are headed much lower. I’m going to add some more shorts if it looks like my “theory” is correct, but I’m not going nuts until we see a big failing rally. What’s more, the metals may be much more rewarding than shorts, but we will see.
Away from stocks, as noted, green paper was weak, with the dollar index breaking 100. Not that that number matters all that much, but what is rather interesting is the euro traded up to around $1.08. Folks may recall that in March 2015 the euro kind of bottomed out at $1.05, and that level really hasn’t been broken, even with all the Trump euphoria. The point being, in the past couple of years people have concluded that the euro was going to zero and America was going to the moon, yet net-net the euro has not been able to breach the 2015 lows. So in the category of, “The dog that didn’t bark,” that may turn out to be quite meaningful.
“Nobody Expects the Spanish Inquisition!”
From a technical perspective, Michael Oliver, of MSA, believes that the action in the last week or so indicates some level of momentum shift, and if the euro trades up close to $1.09 it will be really significant on a long-term basis. I don’t think anyone can imagine the euro going up against the dollar, but that may be what is about to happen. Obviously, if the dollar index is going to come under some pressure, then the whole thought bubble about how glorious and painless everything Trump plans to do will be called into question.
As for bonds, they were higher, thanks to the weakness in stocks, oil lost 1%, and the metals gained about 0.5% to 1%, with the miners even perkier.
Included below are two questions and answers from the Q&A’s with Bill Fleckenstein.
Bonus Q&A
Question: Which scenario do you see as most likely for the economy in the next 6-12 months:
1. Stagflation
2. Recession
3. Boom
What likelihood would you estimate for each scenario? For example:
1. 50%
2. 40%
3. 10%
Thanks for your sharing your insights and reasoning.
Answer from Fleck: “1. Stagflation is most likely. 2. 50%.“
Question: Bill, any connection between your shortest Rap ever and at least some sort of a respectable market sell-off thus far today?
Answer from Fleck: “Yeah, maybe the market stopped trading, and sometimes that happens before reversals.“
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