On the heels of rallies in global stock markets, today one of the greats in the business covered everything from a loss of confidence in central banks to gold, Jamie Dimon, Jose Canseco and the ramp job in global markets.
By Bill Fleckenstein President Of Fleckenstein Capital
February 16 (King World News) – There was certainly a lot of motion in various and sundry markets since last Thursday’s Rap, although in this case the volatility was not in the desired direction. Probably the most remarkable move was the 7% ramp job in the Nikkei, which happened during our holiday on Monday. Meanwhile, China goosed the yuan higher on Sunday night, and between that and the hope hype for the Russia-OPEC meeting that took place earlier today (more about that below) the indices were sent careening higher everywhere…
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It was interesting, however, that while China was 3% higher last night, it sat out a worldwide rally that supposedly was inspired by the fact that the yuan didn’t tank. As I have noted many times, stock bulls and the mainstream media continue to pin all our problems on either China or OPEC, and while those are both problems, they’re not the problem.
After closing on Thursday evening at around 1,860, and after having touched a low of 1,812 late Wednesday, the SPOOs last traded as high as about 1,890. In other words, on Friday and Monday they managed to tack on a couple of percent. However, trading here left much to be desired as most folks were concerned, given that they got the news events they wanted, as the overnight gains were reduced to about 0.75% through midday for the Dow and S&P, with the Nasdaq stronger.
In the afternoon though the indices resumed their rally and were back to the overnight highs by mid-afternoon. However, they couldn’t get any further and closed with the former two gaining 1.5% compared to 2% for the Nasdaq. Away from stocks, green paper was stronger during Monday’s holiday, and today as well.
Turning to oil — the subject of so much speculation and spilled ink — after the grand bargain between the Saudis and the Russians, which amounted to not much, oil declined about 1% back to $29 a barrel. Fixed income was weaker and the metals were slightly lower today after being hammered on Monday. To put it all in perspective, at midday on Thursday gold traded as high as $1,260 and last night it hit as low as $1,190 before trading back to $1,215-ish, only to close today around $1,200, down 0.75% (though lower by about 3% from Friday). Silver saw similar though slightly more volatile gyrations and closed at about $14.25.
In Go[l]d We Trust
On the subject of precious metals, it does seem as though there are more articles pointing to the fact that people are losing confidence in central bank policies. Friday’s New York Times business section led off with a headline that read, “New Fear That Central Banks Are Hindering Global Growth,” and the Wall Street Journal recently carried a story that pointed out what it called the “doom loop” as a way to illustrate that these policies just aren’t working.
Having said that, even more radical ideas are still percolating to the surface by those who believe that the only problem with failed policies is that they weren’t radical enough when they have gotten nearly logarithmically more adventuresome over the course of the last 15 years. In a Bloomberg story, also from Friday, headlined, “There Are Still a Few Tricks Seen Up Central Bankers Sleeves,” the author noted that despite 635 rate cuts since the financial crisis, and the cumulative monetization of $23 trillion worth of assets — I might point out with around $9 trillion now yielding between one less than zero percent — proponents of this insanity suggest that what the central bankers need to do is make a deal with politicians whereby they massively increase deficit spending by cutting taxes and boosting programs, then the central banks would cover the “resulting rise in borrowing by purchasing even more bonds.”
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Apparently, the advocates of this process have nicknamed this process “cold fusion,” and the article quoted a Morgan Stanley foreign exchange strategist, Hans Redeker, who said, “I would actually look into the next step of monetary policy [which cold fusion is meant to be] because what we need to fight is demand deficiency.” The article also noted, “There is little more bond buying and rate cutting can do to stoke the real economy. And markets, they say, now recognize that.”
So this article describes that the process hasn’t worked, but if we just go bigger and bolder it will. I can’t think of anything more bullish for gold than cold fusion.
Included below are two questions and answers from today’s Q&A with Bill Fleckenstein.
Bonus Q&A
Question: From CNBC this AM: The prolonged sell-off in risk assets across the globe will only abate if the U.S. Federal Reserve changes its path and begins to loosen its monetary policy once again, according to strategists at Deutsche Bank
23 verse same as the first…
Answer from Fleck: “Pretty much.”
Question: Bill, it has obviously been a great six weeks for those of us in your camp on stocks and gold/gold miners. Given the fundamentals, I think things should continue in this manner for the foreseeable future. However, last week ended with central banks getting ready to double down, Jamie Dimon buying a ton of JPM stock, the market whole heartedly believing these ridiculous stories about OPEC cutting production and DB buying back its debt (and ripping higher as a result), market sentiment being allegedly super bearish for stocks, and Jose Canseco urging people to buy gold.
In the past, these have been the kind of signs that would indicate that the stock market was about to rocket higher and gold fall significantly lower. Do you think that the market will continue as it has for the last six weeks, or are these developments from the last couple of trading days an indication that there might be a reversal coming? Thanks so much.
Answer from Fleck: “In the past, we haven’t had people lose a bit of faith in the central bankers (since 2011-ish) and we have now, plus the size of the move in gold/miners and the huge volume leads me to believe they will be heading higher, but with scary pullbacks. As for stocks in general, I doubt they can go too far, but I have cut my shorts back a lot because stuff isn’t going down “well,” for me anyway.”
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