As we move through the third week of trading in 2018, today was a wild, wild west trading day, but look at this insanity…
By Bill Fleckenstein President Of Fleckenstein Capital
January 16 (King World News) – The equity market blasted off as soon as the casino — I mean stock exchanges — opened for business. It took all of half an hour to see the market gain 0.75%, with the Dow leading the charge higher — that despite the fact that Dow component GE is still suffering the ill effects of the Jack Welch era, where they made the number about 875 times in a row within a penny, mostly thanks to flexible accounting in the financial products arena.
Introducing the “Make-Up” Rally
In any case, there was no news to account for the wilding, other than the fact that U.S. markets weren’t open yesterday and perhaps they felt they had some catching up to do. In other words, given the way the mania is right now, the market would have “obviously” been higher if it had been open so today it had to go up even more. At any rate, that’s my tongue-in-cheek attempt to make sense of the senselessness.
Those early gains didn’t last too long, as they slowly bled away and turned into about a 0.5% decline, if only briefly, before a rally then trimmed the losses to about half that, as it looked like the market might get back to positive territory. However, that was a bridge too far and the indices closed with the modest losses you see in the box scores.
Away from stocks, green paper was a bit weaker after having also been so yesterday. Fixed income saw a slight bounce, oil lost 1%, and the metals were weaker, with gold down $1 to a 0.75% loss in silver. The miners put in a solid performance after staging a pretty respectable breakout last Friday…
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When Psychology Is the Only Fundamental
In the funny-if-it-weren’t-sad department, Chinese rating agency Dagong lowered the credit rating for U.S. debt from A- to BBB+.
And in the land of cryptocurrencies, last night and today saw real bloodshed, as most of them declined 20% to 25%, except for those that fell even further, and the market cap for cryptos plunged to about $540 billion. Once again, there was no real proximate cause, although there was more saber-rattling on the part of South Korea, but we have seen that many times before.
As I noted in my first column of the year on Jan. 2, which I encourage folks to revisit if they are interested in this topic, the important lesson here is that when markets are powered by nothing other than psychology, they can break for any reason. The break that happened in Bitcoin on Dec. 22 had no proximate cause, and that really was the top of the frenzy, although the total market cap may have gotten a bit higher in early January. I would say that Bitcoin and its “associates” are now badly, badly broken and we may have seen the end of the overall euphoria, although there will continue to be surges in individual coins/tokens I would guess.
Mania of the Mind
Again, the important takeaway is that manias are powered by psychology and that can shift at any time. The same will happen to the stock market and for that matter the bond market at some point in terms of psychology changing and pain ensuing. This is why my favorite analogy for the crypto market has been a chain letter, because that just seems to me the most black and white version of something where the main driver is psychological, and of course the cryptocurrencies are the 21st century version of that.
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