As we move through the first week of trading in the month of November, one of the greats in the business stated, “The imbalances we have are just immense.” Plus there is a look at gold and the mining shares.
By Bill Fleckenstein President Of Fleckenstein Capital
November 2 (King World News) – Yesterday I noted the macro roulette staring us in the face, but I neglected to note that the Republican tax plan was also due to be unveiled today. This will be a case where the devil is in the details for sure, but it does appear that the proposed bill will be a tax cut for corporate America and, while some individuals will see lower taxes, others will pay more. Whether the bill is passable, I don’t have an opinion yet, but what I can say is that it is not at all clear to me how cutting corporate taxes will de facto create jobs. Could it? Yes. Will it all by itself? I am not so certain…
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These Are Not Normal Circumstances
All things being equal, if the economy were a normal functioning one, corporations with higher earnings and cash on hand might expand and create jobs. On the other hand, given our economy is far from “normal,” they might just buy back more stock or up dividends. So it is not at all obvious that this will be particularly pro-growth. And in any case, we will have to see what actually can get passed before spending any time thinking about what the economic and financial ramifications may be.
In addition, the world’s favorite and largest company will report earnings tonight, that being Apple. I don’t see how they can avoid being disappointing, but bad news hasn’t really mattered to a large degree, with a few exceptions. Specifically, it mattered to Tesla last night after it reported pretty much disastrous results, especially if you think that an increasing cash burn with high debt levels are a problem — in addition to the production issues the company has.
For those of us rooting for an outbreak of sanity, Tesla may be a canary in the coal mine, and it looks as though the stock may finally be broken. Of course, it has stumbled in the past only to come firing back, but this feels different to me (TSLA declined about 6% today).
Turning to the market action, overnight the stock index futures were weak, then they rallied back in time for the market to open slightly positive. But in almost no time the indices rolled over, led by the Nasdaq, which lost about 0.5%. In the afternoon, the market rallied back with the indices mixed, but basically closing flat to higher.
For Those Who Have the Stomach For It
I will add that the market feels to me like it might finally be on fumes and ready to take a breather. That is just my gut feeling and probably not worth much, but I thought I would share that observation. I haven’t done much about it except to hold some AAPL puts, as most of my occasional blind stabs have not yielded much thus far. We may know more tomorrow.
Away from stocks, green paper was mixed, but flattish, as were the metals. Oil gained a small amount, while fixed income was aggressively higher.
Some Miner Improvement
The miners were non-events again, with Kirkland Lake springing ahead after a big day yesterday, thanks to an earnings report that led me (and others) to conclude that operations are going well there, and liable to get quite a bit better prospectively.
Included below are two questions and answers from the Q&A’s with Bill Fleckenstein.
Imbalances Are Immense
Question: Fleck, I might have written in about this before, but went out with some friends the other day. They were talking how the economy is going well, and I said no its not. They asked Why, and I said you can’t call the economy healthy if you walk into your bank and can only get 1% on a 5 year CD. Not sure that convinced them, but it did make them think a bit more about what they said. It is amazing that only around 10 years ago historically you could walk into your local bank and get a totally safe place to park you money where for the most part the return on that money would keep up with inflation. I can’t imagine what will happen if/when the market goes down, and you still get 1% on a 5 year CD – and then people are going to say “Oh My God, what do I do now!”. And meantime, presently, all the people who don’t have assets in stocks and have their safe savings accounts are getting murdered while the powers that be celebrate prosperity since their stocks are way up. This is such an unhealthy situation, but no one seems to care about it.
Answer from Fleck: “The imbalances we have are just immense, and most folks don’t care about any of them for the moment. It is just so bizarre, but it is what it is.”
GDX, GDXJ & Gold
Question: Bill: Are you noticing anything amiss about the amount miners move versus gold this year? GDX seems to go up a little more than gold on an upward move (maybe 1.5 to 1 ratio or so). But GDX seems to go down maybe triple gold’s down move. I have minimal historical experience on this and looking to get your opinion. Man, GDX and GDXJ really are going down a lot vs GLD. Very Best to you
Answer from Fleck: “This year that has been the case often. Last year it wasn’t for most of the year. At the moment, it seems that Americans just have no interest so the sector lags, even as the one which posts very good results.”
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