On the heels of another rally in stocks, today a short seller just warned, “This is actually far crazier.”
China, China, China, Etc.
By Bill Fleckenstein President Of Fleckenstein Capital
April 3 (King World News) – The market nearly reached nirvana this morning over hopes that the Chinese “trade war” is about to end (thanks to more trial balloons on the part of the administration), and that caused the market to blast off right out of the gate, led by the Nasdaq, which gained about 0.75%. In the old days (i.e., before QE), a common saying was that the market never discounts the same news twice, but as we have all seen, every story about an improvement in Chinese trade relations has helped boost the tape…
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Operator, We Seem to Have Been Disconnected
If and when we get a deal, it is liable to be anticlimactic, and I am skeptical as to what it will actually entail, although that doesn’t really matter at this juncture. Where we are right now is that the market is behaving as though there will be a deal with China, said deal will be “just right,” and the ending of QT is the same as QE (it isn’t). I bring those points up because, when you factor them in with the weakness in the world economy, it is basically the definition of a disconnect.
Obviously, the spot where I thought the rally was going to fail was not correct, and it would now appear that the market is intent on trying to test the old highs, which is similar to the behavior we saw in the two prior bubbles. Meanwhile the market is potentially building a massive, year-long, head-and-shoulders top.
Many That Are First Will Be Last
I will never forget the summer of 2000 when the market came back to test the highs and the very stocks that were the least likely to do well were gunned the most in the last leg, namely, the very tech companies that had seen their businesses plumped up thanks to Y2K, which had passed, while their main customers (the dot-com companies) were being eviscerated. But that didn’t stop a wild rally in the hardware suppliers to those businesses.
This disconnect looks to be every bit as big, with only slightly different variables. Having said that, my observation (or bit of analysis, depending on how you want to look at it) will only matter when it starts to matter, and we can’t know that in advance.
The bottom line is, despite the strength of the tape since Christmas Eve, QT is still underway, the world economy is still doing poorly, while the rabid hopes for a brilliant trade deal and second-half recovery, I think, are going to be misplaced. Again, none of that will matter until it does, much as we saw last October. Everything was ignored until something went wrong, then the downside fed on itself.
Turning back to the action, in the afternoon the gains were nearly eliminated for the Dow/S&P, while the Nasdaq held on to 0.5% of upside. Away from stocks, green paper was mixed, fixed income was lower, and the metals were about flat, while the miners were mixed.
Inside Scoops
On the mining front, last night Wesdome reported its production figures and they were better than expected. Thus, the recent decline in the stock price had absolutely nothing to do with what is going on in the business, and has created an opportunity for those who don’t have a full position.
On a related note, I happened to notice that the new chairman of Kirkland Lake recently bought about $150,000 worth of stock, which would suggest to me that its recent decline also had nothing to do with production. While I’m on the subject of insider buying in names that I own or am fond of, in the last couple of months two directors of Pretium also bought stock, suggesting that their production must be going as planned. Of course, improving fundamentals don’t seem to matter much in the mining sector, just as deteriorating fundamentals don’t matter in the stock market. But at some point they will.
Included below is one question and answer from the Q&A’s with Bill Fleckenstein.
“This Is Actually Far Crazier”
Question: Dear Bill, I feel like I’m losing track of the plot, of what to expect (or hope for). We’ve move from QE to QT and now murmurings of going back to QE — but QT hasn’t helped gold all that much (at least so far), and new prospective QE also doesn’t (so far) seem to be moving gold (only stocks). The fact that CB’s are murmuring about moving back to QE doesn’t seem to have caused market participants to lose faith in CB’s policies — at least not yet? Is it really only a market crash that will precipitate that? (And is there any chance the ‘new’ prospective QE now being held out, will prevent a market crash and keep stocks levitated for more years to come?)
Answer from Fleck: “QT shouldn’t automatically help gold, it only exposes the fallacy that the CBs can actually withdraw the liquidity they created. However, you are correct, the masses still believe CB policies only create upside, and no downside. There will be no QE without serious stock market and/or economic weakness, which we will get, but I don’t know when people will start to realize that. We just have to wait and see. We saw similar delusions in late 2007 and 2000, but this is actually far crazier.”
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***KWN has released the powerful audio interview with Andrew Maguire and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***Also just released: Gerald Celente Just Issued A New Trend Forecast To Kickoff April CLICK HERE TO READ.
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