Today one of the greats in the business said to start 2019 fear is waking up.
Fear Is Waking Up
By Bill Fleckenstein President Of Fleckenstein Capital
January 2 (King World News) – Once again while I was away markets were “in turmoil,” to use the Bubblevision phrase for any modest amount of indigestion that befalls the stock market, since they are of the belief that Wall Street is a pet kitten that spits out $100 bills instead of a wild beast that wants to rip your lungs out. QE and easy money policies, which have gone from Greenspan’s too low interest rates of the mid-1990s to the grotesque policies that the world undertook to paper over the 2008 crisis, have served to anesthetize people and convince them that the stock market was the land of free money…
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More Than Fear Itself
As I have stated all along, it was impossible to know when the ending of QE would matter to equities. Would it simply take the fear of losing QE or would it take the actual withdrawal of liquidity (i.e., QT)? We now know the answer: QT, to the tune of about $50 billion a month, is enough to burst the bubble, and now that the effects are biting, there will be no relenting until the Fed ceases the liquidation of its balance sheet and begins the process of QE again.
As I’m sure everyone knows, I’m not advocating that policy, as I think easy money has done nothing but cause trouble, not the least consequence of which has helped create a radical bifurcation of wealth in this country, but has also skewed businesses and the ways state and local governments operate, along with all the attendant problems of can-kicking that they do on the liability front awaiting to be unleashed as the bear market rolls on.
When the Treatment Is Worse Than the Cure
Thus, the Fed has basically turned a market that could be rescued with aspirin into one that needs heroin, while making the country’s problems far, far worse in the process. Nonetheless, the facts are as they are. What we don’t know is how much of a decline it will take to start a serious backing off process on the part of the Fed.
One of Mr. Skin’s favorite expressions is, “Confidence is just fear asleep,” and it would appear that fear is in the process of waking up.
Our Money, His Mouth
As for today’s action, it began last night with the SPOOs opening about 0.5% higher, but that gain quickly turned into a loss. When the market opened in New York, it fell over 1% before a rally began which took the market back to positive on the day. From that point, there were several surges back and forth, but by day’s end, the Dow/S&P were about flat while the Nasdaq held on to a roughly 0.5% gain.
Away from stocks, green paper was stronger (for what it is worth, I believe at some point Trump will resort to talking the dollar down to try to help the economy). Fixed income was higher, particularly at the long end, while the precious metals were higher with gold gaining 0.5% to just 0.2% for silver, although the latter did shrug off a 1% overnight loss. Oil popped for 3%.
Included below is one question and answer from the Q&A’s with Bill Fleckenstein.
“100% Certain It’s A Bear Market”
Question: Hi Fleck, Wishing you a very Happy New Year. Welcome back.
1. How strongly do you feel we are in a bear market in 2019?
2. If we are in a bear market, would you be looking to have a material % of your portfolio in puts (tech, market), or continue to stick with pm/pm miners?
3. Between PM & miners, do you feel we are at a point of higher allocation to miners relative to PM’s (70% miners, 30% metals, of the PM/miners allocation in my portfolio)? Regards.
Answer from Fleck: “I am 100% certain it is a bear market. I will short and buy puts if/when I get the right setup. How big I will get I don’t know. I have no planned percentage. It’s hard to say how to allocate between them, it is a matter of personal risk tolerance. I think miners have far more upside, but they entail more risk as well, though they are very cheap, which helps reduce risk as well.”
***To subscribe to Bill Fleckenstein’s fascinating Daily Thoughts CLICK HERE.
ALSO RELEASED: Art Cashin Kicks Off 2019 And Peter Boockvar Says Stay Golden This Year CLICK HERE TO READ.
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