The global panic continues as the Nikkei is now down nearly 17 percent in just 7 trading days as gold shines.
By Bill Fleckenstein President Of Fleckenstein Capital
February 11 (King World News) – Once again overnight markets were chaotic, with Japan losing another 2% (as the yen strengthened further), Hong Kong falling 4%, and most of Europe declining 3% to 4%. The SPOOs lost about 2.5% in sympathy preopening and the market opened a couple of percent lower, but from there the dip buyers showed up once again to trim those losses to about 1%, plus or minus. (Early on the Dow was doing a little worse than the Nasdaq. Go figure.) Also overnight, the Swedish Riksbank decided to make rates even more negative there, so bad policy continues to beget more of the same…
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Nearly every morning recently the market has opened weaker, but for some reason people keep trying to buy the dip. I guess that just goes to show you what the last seven years of training from the Fed has done for people. And they still can’t see that the only reason stocks have gone up was as a function of QE, which obviously isn’t operative right now.
After the early selloff the market flopped around in a wide range until it broke hard late in the day, down about 2.5%, but then came screaming back with oil (on the back of yet another emergency OPEC-type meeting). This bear market isn’t about China or oil, though they do contribute to the chaos, yet on many days folks act like those problems are all that matters. Nonetheless, by day’s end the Nasdaq was just slightly red, the S&P lost 1%, and the Dow was 1.5% lower.
For the Yen, It’s the Land of the Setting Sun
Away from stocks, green paper was mixed, though weaker against both the euro and the yen. Apparently, the Bank of Japan intervened to stem the yen’s rally, which succeeded in pushing it off its extreme lows. Nonetheless, Japan continues to be the poster boy for insane policies and unintended consequences, as they are doing everything in their power to collapse their currency, which ought to make all financial assets there essentially worthless, yet the currency rallies (mostly because too many people were positioned the wrong way and are now getting squeezed) and bond yields trade to zero percent.
The only sign of sanity is that Japan’s stock market has been crushed, and perhaps their move to negative interest rates has helped accelerate the process of the world understanding that the central banks are not only completely clueless, they are also out of control.
Gold Price = 1/T, Where T = Trust In Central Bankers
This of course leads us to the metals, which exploded today. Precious metals appear to be repricing themselves on the upside sort of the way oil did on the downside. I can’t be certain that is what’s happening, and who knows how far this leg of the rally in gold will go, but suffice to say that most people who might have been inclined to buy gold have been left behind as they looked to “buy the dip.”
In any event, by mid-session gold rallied about 4% to silver’s 3% before they squirted higher still, only to fall back to close around those levels. The miners were all higher, though they closed off their best levels. Lastly, oil was splattered again today for over 5%, then the rumors started and it managed to get back to almost even. Naturally, all of the chaos was beneficial for Treasuries, as they screamed higher.
Included below are two questions and answers from today’s Q&A with Bill Fleckenstein.
Bonus Q&A
Question: Oh my gosh. I just figured out what negative interest rates is really all about. Central banks see a future where I can buy a house with a negative interest rate bank mortgage and the bank will pay me to live in it! Talk about a housing lead economic boom. This is just pure genius. Did I get their thinking right Bill or am I still confused?
Answer from Fleck: “Nope, you have it right. Welcome to fantasy land!”
Question: Hi Bill, comment/observations. Fully agree that we need to see a growing number voicing their concerns that the Fed has lost it. As you say, as if they ever even had “it”. When a loss of “hope” in the Fed spreads the metals/miners will really move.
So yesterday when I was out, listening to CNBC via car sat radio. Happened to pop into some round table discussion re the markets. It was hosted by Michelle Caruso-Cabrera, not their typical sorority/homecoming queen host. She sometimes actually has pretty good observations. This being one, when low & behold she posed the question to the guest, something to the effect of: “Do you think the Fed has lost control ?” Woa …. The guest immediately responded back, ” Lost control, they never had control. It’s just too much to expect the Fed to be able to control the economy, unemployment, the dollar, and international issues, etc It’s just “a bridge too far.”
So cracks are beginning to show up in the dam…..IMO this may be part of why metals/miners are doing better lately, even today closing green, post Yellens testimony. They could have easily finished red today. Lots of gold traders are expecting a significant pullback in here, too many IMO.
Finally re Yellen testimony today …besides what a superiority attitude ….”the emperor has no clothes” Anyway, all the best, hang tough ….
Answer from Fleck: Indeed, the emperor has no clothes, nor does the Fed. 🙂
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