Today one of the greats in the business covered “the subject of the current turbulence we’re seeing in so many places.”
As Liquidity Recedes
By Bill Fleckenstein President Of Fleckenstein Capital
August 14 (King World News) – The market blasted off right from the get-go and by midday the indices had gained about 0.75%, with the Dow lagging a bit, as the burgeoning emerging-market/currency/trade war issues were deemed to be “contained” (not that anyone said that, it’s just my interpretation of what U.S. stock bulls must be feeling)…
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Finding Its Level
On the subject of the current turbulence we’re seeing in so many places, I would like to point out that with the world awash in liquidity for so long, thanks to the reckless policies of the central banks, and now that said liquidity is starting to go the other way, as it has since the Fed began QT, the consequences are showing up in the weakest or most speculative markets first (as they typically do, historically).
Thus, in late December the cryptos cracked for no apparent reason (their collective market cap set a new low for the year today), and that was followed by a rolling series of problems with various countries, e.g., Venezuela, Turkey, China, etc. This will continue to be the case.
Some have asked whether Turkey was the beginning of something systemic. That question is over my pay grade, but the Lord of the Dark Matter today suggested that Turkey’s problems have been obvious for quite some time to those who are knowledgeable about these types of investments.
“Break Bitter Furies of Complexity”
He also said he does not believe that Turkey would, “metastasize into a systemic event,” although that doesn’t mean there won’t be a fair amount of pain for those who are exposed to the various types of speculative positions that many have piled into, thanks to ridiculously low interest rates around the world.
Turning back to the action, in the afternoon the market drifted sideways until I left, with an hour to go. Please check the box scores to see the final outcome. Away from stocks, green paper was a little stronger, oil was flat, fixed income was a little lower, and the metals saw a microscopic bounce.
Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.
Turkey Selling Gold?
Question: What probability estimate would you give to this theory: Gold’s price plunge now is related to Turkey & other vulnerable central banks liquidating their holdings of the metal.
Answer from Fleck: “Close to zero.”
Peace Of Mind
Question: I would add to the very good PSA today: if you buy metal and put it away, you’ll find that you’ll be less and less disturbed by, or even interested in, the daily price swings.
Answer from Fleck: “I agree with that.”
Cracks Have Appeared
Question: Hi Fleck. Do the problems in Turkey cause capital flight from other emerging market countries because investor psychology groups all these countries as one group, or is there a more mechanical reason? I’ve never understood why so many countries that are so different seem to be treated as one. Best
Answer from Fleck: “It’s all related to the massive excessive liquidity that was created by central banks, which went everywhere. As the Fed has been doing QT, cracks have appeared, first in crypto, and next in emerging markets. The weaker, more speculative stuff usually cracks first, as it has this time.”
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