On the heels of the Nasdaq tumbling 160 points and the Dow falling over 360 points, today King World News is pleased to share Bill Fleckenstein’s wrap, plus a bonus Q&A as we continue to see stock market carnage in the early part of 2016!
By Bill Fleckenstein President Of Fleckenstein Capital
January 13 (King World News) – China was weaker last night, but most other world stock markets were higher, and the SPOOs participated in that party, gaining about 1% overnight. However, after opening higher, U.S. stocks were modestly lower by midday. Beneath the surface, for those looking for weakness in the Apple food chain it was a good day, as those stocks were roughed up even as the tape was firmer. It’s sort of nice to see a bit of sanity in the sea of nonsense we deal with on a regular basis…
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After a small bounce in the early afternoon, sellers showed up in force with the Nasdaq leading the charge lower. By day’s end the market had fallen 2.5% (with the Nasdaq losing 4%). Now the question is will the market break the August lows and accelerate, or bounce? I suspect accelerate, but we shall see.
Commodity Carnage
Away from stocks, green paper was flat, oil managed a 1% bounce, and fixed income was higher, as were the metals, with silver adding almost 3% to gold’s 0.7% gain. As for the miners, I have no idea why they have been splattered in the last couple of days, especially given the fact that gold has not behaved all that badly. On the other hand, it is not just the precious metals producers that have been suffering. Alcoa has declined about 25% this year and many base metal producers have been clubbed as well.
I think perhaps as the energy complex and many base metals continue to see massive selling, some of that just spills over to the miners, even though gold has done far better on this decline than any other commodity and basically anyone who owns gold outside of America (i.e., the U.S. dollar) has seen it do well for them. None of that really matters, however. The only thing that does matter is when will the gold market finally erupt and buyers come out of the woodwork.
A Light From the Dark
Now I’d like to turn over the microphone, as it were, to my buddy the Lord of the Dark Matter. His most recent report had a lot to chew on and I’d like to share several highlights. In probably reverse order of importance, he pointed out that part of what we might be seeing in the oil patch is a lot of short selling by holders of high-yield energy paper, where that paper is virtually untradeable in any kind of size. Thus, they are trying to reduce their potential risk by shorting oil.
I certainly can believe that and the reason I bring it up is because at some point when the oil market finally bottoms it will probably act like death as folks pile into it, either to be short after it has gone straight down for 15 months, or to hedge themselves. On the other hand, if oil climbed 30% it really wouldn’t change much. I pass this on more to let folks know that the signal emanating from the daily trading in the oil market may have more to do with angst about other positions than it does with the supply-and-demand equation in oil itself.
Home of the Brave
The LODM also pointed out, “All the angst, the bearish/deflation narrative…the worst ever start to the year for the U.S. stock market, and the absence of the S&P 500 to sustain a bounce, the absence of panic buying of protection is noteworthy.” He then asks the rhetorical question, “Do we deduce that people are comfortably hedged?” His conclusion is obviously the opposite: there is quite a lot of complacency, even given all the headline hand-wringing.
Lastly, he noted his opinion that, “The battle for the renminbi has barely begun.” In an email exchange with me yesterday he suggested that he thinks it is quite likely that the powers that be in China have no choice but to allow the currency to sink. The $64 trillion question is whether that happens gradually over time or all at once. The end result will likely be similar in either case, but the path to getting there could be drastically different. Regretfully, there is no way to know which we will see in advance. Heretofore, I have been somewhat agnostic about that because I try not to have opinions on subjects where I know I have incomplete data, but I have received numerous questions about this, so I thought I would pass along his views.
Included below are three questions and answers from today’s Q&A with Bill Fleckenstein.
Bonus Q&A
Question: Bill, just checking in and wondering if since this past fall and given current situation(s) you’ve altered in any way your views about gold prices in the next couple of years (much higher)? Hope you had a nice holiday and thanks and Happy New Year.
Answer from Fleck: “Nope, no opinion change at all. The stock market cracking will be a huge help in hastening the psychology mindset change that I think we need.”
Question: Hi Bill, Could you give a brief macro comment on where you think we are re: commodities hitting decade lows – a deflationary pulse or the result of far too easy money and less growth in China? Old in the 20’s, copper, palladium, Pt, etc. killed. Gold next? Much Appreciated
Answer from Fleck: “China tanking plus massive puking is what we are seeing. How much longer it lasts probably depends on each individual commodity’s own supply-and-demand story. I haven’t wanted to own base metals or oil, I only care about precious metals.”
Question: With oil at $30 – what do you see as the end game? Does it go to $25 and stay there for an extended period of time and thus bankrupt 30-50% of energy companies? Does it take down countries? If so, what ramifications does it have beyond a tanking stock market? Thanks.
Answer from Fleck: “I suspect the decline is getting pretty late in the day, but that doesn’t mean oil must trade higher. We could stay around $30 to $45 for some time while the production cuts and bankruptcies occur. It will cause plenty of pain, as it already has. Oil itself tanking helps most other businesses, but the ramifications of bad oil paper can infect plenty of holders of that debt.”
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***To hear more on the gold market from the man who advises the most prominent sovereign wealth funds, hedge funds, and institutional funds in the world, Michael Belkin, CLICK HERE OR ON THE IMAGE BELOW. Belkin covers the historic rally he expects in gold and the mining shares as well as what he expects to see in global markets for the rest of 2016.
***ALSO JUST RELEASED: Fleckenstein – Stock Plunge Will Soon Accelerate, But What About Gold, Silver And Oil? CLICK HERE.
***To listen to the powerful KWN audio interview with Egon von Greyerz CLICK HERE OR ON THE IMAGE BELOW.
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