On the heels of the Dow soaring to the 21,000 level, today a legendary short seller warned “We are in Fantasyland” as stocks soar and gold, silver and the miners are smashed.
By Bill Fleckenstein President Of Fleckenstein Capital
April 25 (King World News) – The market exploded out of the gate, once again led by the Nasdaq and the momentum favorites within it. The last couple of days have seen gaps higher in the Nasdaq, the Nasdaq 100, and the Dow, as well as the S&P, with the former two making new highs…
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Beware the Ideas of March (2000)
Whether this is part of the late stage of the exhaustion process I have been discussing (and it still could be, given that the Dow and S&P haven’t made new highs), or we are heading into a full-blown blow-off lasting some days or weeks (which will be the end of the exhaustion), I certainly can’t say. I am watching very carefully, however, because the market is beginning to feel like March 2000, which of course was the end of that particular mania.
As I have said for a long time, it is really impossible to know in advance what might happen and all we can do is be alert to clues, which is why I have been discussing this almost daily while doing very little about my musings of an exhaustion peak. But it seems clear to me that the rampage has been predicated on new hype/hope over Trump tax cuts and the fact that the euro appears to have been saved by France, along with wild reactions to mundane wins at Wall Street’s ridiculous game of beat-the-number. (Today McDonald’s and Caterpillar were winners and they helped power the Dow.)
Ninth Inning Stretch?
Later in the week will be much more interesting, as we have a chance for earnings disappointments (based on what happened last quarter) from some of the momentum favorites like Google and Amazon (I nibbled on a few GOOG puts today). How all this plays out still remains to be seen, but I don’t think there is any doubt that we are in the very late innings of this particular ballgame that has run for the last eight to nine years.
In any case, after the morning’s fireworks, in the afternoon the acceleration to the upside slowed a bit and by day’s end the Dow had gained 1%, the Nasdaq 0.75%, and the S&P a “measly” 0.5%. Away from stocks, green paper was sort of flat, with the euro stronger and the yen weaker, but there was just noise versus the other pieces of colored paper. Oil was a nonevent, fixed income was lower, and the metals were smacked, with gold losing 1% to silver’s 2%. The miners were drilled, with both Newmont and Barrick Gold deemed to be losers at beat-the-number, although I saw some reports suggesting that Newmont was just fine.
When Results Speak For Everything But Themselves
Not that it matters. Mining is particularly inappropriate for the absurd beat-the-number game, which is an insane way to look at companies in the first place, but it has become ever more popular during the interventionist Fed era that has been spawned since Greenspan, and expanded logarithmically since. The only thing that seems to matter is how companies do in the eyes of those judging this incredibly shallow endeavor.
Be that as it may, I didn’t think the results at Barrick were nearly that bad, so the fact that it and nearly every other mining company was splattered for 5% to 10% clearly has nothing to do with the individual companies themselves and everything to do with the ETFs, leveraged ETFs, and algos, combined with a lack of interest in the precious metals sector in general.
Included below are four questions and answers from the Q&A’s with Bill Fleckenstein.
A Trip Through Fantasyland
Question: Fleck, It seems insane that the market would get a boost when Trump announces the most massive tax cuts ever. Have we, ever in our history as a country, offset massive tax cuts with massive expense cuts by the gov’t? It seems tax cuts just mean more debt and a larger deficit. We are already at 20 trillion.
Answer from Fleck: “We are in fantasy land for the moment.”
Question: Hi Bill, Could we be looking at a blow off top in the stock market? Thanks Bill, Take Care
Answer from Fleck: “Sure, that could easily be the case.”
Question: No question, just an observation. The real estate market seems quite crazy again. My sister put her house up for sale last Monday and it sold on Wednesday for full price. Had they not accepted the full price I’m sure there would have been a bidding war on it. Then yesterday, a friend of mine said she is going to put her house for sale just to see what price she can get. No reason to sell other than she figures she can make top dollar for it. This is in California where housing prices are already in the stratosphere. I see a lot of major home remodeling going on here as well. Maybe the economy isn’t so bad after all. Seems like the mania in the stock market might continue for awhile especially given rates dropping back to nothing. It feels like we’re just in a continuous loop and we play the same game over and over again. It really is amazing how this goes on and on.
Answer from Fleck: “Certain cities are red hot, but many places aren’t..Still, your observation is accurate.”
Fleckenstein’s Take On The Plunge In Mining Shares
Question: Fleck (Your inbox doth runneth over today, no doubt) Wow! Quite the thumpin’ in the gold miner world today (as of 11 AM 4/25/2017). High volume and no mercy. Do you think this is the start of something more severe and protracted or instead we may be nearing the final washout? You trimming miner positions today? Or am I guessing right in that you will do nothing until the gold dust settles and then evaluate? Charts are broken and seems like it will take quite a while to repair them. Regards
Answer from Fleck: “I’d lean towards late in the washout. No, I’m not selling stuff. Not buying either yet, though that could change fast. Charts can repair themselves quickly.”
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