Today’s panicked trading produced something we haven’t seen in many, many years.
By Bill Fleckenstein President Of Fleckenstein Capital
December 3 (King World News) – The SPOOs 0.5% or so higher overnight, though I can’t say exactly why. However, that could cheer did not last long and by midday today the indices were slightly red…
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The major financial news of the day was that the ECB dropped its already negative deposit rate by 10 basis points to -30 bps, while adding a few bells and whistles to its market manipulation tactics. Those developments were deemed disappointments, however, and European equity markets lost between 2% and 3%, with the euro scooting 3% higher as well, although I don’t really think that had too much to do with the action here.
Yesterday I was puzzling whether that session’s decline may have indicated that the market has exhausted itself or if it was a kneejerk response to the shooting in San Bernardino. Given the overnight action, it would seem that today corroborates the former rather than the latter, but obviously a two-day snapshot is not always meaningful. Perhaps we will learn more after tomorrow’s nonfarm payroll report.
Try to Keep a Level Head
Turning back to the action, by early afternoon the 200-day moving average was taken out by the S&P, which closed 1.5% lower. The next big level that matters to me is the November low of roughly 2,020-ish. If (when) that is breached a lot of folks will be trapped.
Away from stocks, green paper was weaker, although mostly just against the euro and the pound. Oil managed a 3% bounce and fixed income was really hammered, with the long end declining as much as I have seen in many, many years (the long bond lost four points, or roughly 2.5%). As for the metals, they traded on both sides of unchanged before finishing about 1% higher.
Included below are five questions and answers from today’s Q&A with Bill Fleckenstein. The questions are from his subscribers and they get to read Fleckenstein’s answers every day.
Bonus Q&A
Question: Bill, it might be worth pointing out to your readers that the biggest loser of the Yuan being added to the basket of reserve currencies is the Euro. The dollar’s proportion of the reserve basket is virtually unchanged when the Yuan is added in October 2016, while the Euro is being cut 16% to make room. Since the dollar’s value is measured in relative terms against other currencies, which currency is going to become so strong that the dollar tanks? The dollar is not collapsing anytime soon – it is the best of the worst – but gold is still my preferred choice!
Answer from Fleck: “OK, thanks. I’d say it is the least bad, for this five minutes, though that too will change.”
Question: Fleck, it seems to me that many times the times when you think the worst should happen to an investment the opposite occurs. I am actually basing this on many lousy investments I have had including gold in 2011 – when investing in gold seemed like a given, but in hindsight not so much. Perhaps people will look back at this first Fed tightening as the beginning of the end of the Central Bank omnipotence – and in fact Gold will get a bid simply because the smart money knows the hand is played now – there is no more hiding or faking it anymore – and the results will be obvious to all. Of course, it’s all perhaps….
Answer from Fleck: “It could easily be the start of the end for Fed credibility. It won’t take long for it to become clearer that they can’t deliver what they think and that they are basically clueless.”
Question: Fleck, I imagine, if we were to look at critical Fed decision periods, there could be some similarity to Paul Volcker back in the early 80s. At that time he made a commitment to raising rates to crush inflation. Given your analysis of the Fed, is it at all possible that Janet sees herself in a similar position – to raise rates no matter what to get them back to some normal level? And she will allow the pain that happened during Volcker’s days happen during her reign? Goldman just came out and said to expect a longer tightening time than expected – and I am beginning to think given all the Goldmanites on the Fed – that they are just a mouthpiece and that is what the Fed intends to do.
Answer from Fleck: “Oh please, this is just fantasy. There is no similarity to Volcker at all. None. Sorry.”
Question: Bill, just wanted to thank you for your excellent responses to questions, even when you hear same old from worried investors all the time. I know you cannot be “right” all the time. No one can. But the logic you present is notable and most of the time actionable for sure. One appreciative reader I am, despite these insane and damaging (to me) markets.
Answer from Fleck: “I’m glad that I can help. In today’s central-bank-manipulated markets, having a sense of history and common sense are liabilities until the masses, who are essentially unaware of the dangers, are forced to wake up.”
Question: Hi Bill, yesterday the” GLD” ETF reported a 15 tonne draw to 639 tonnes ,the lowest in several years. Does this action give you much concern? Thanks
Answer from Fleck: “Puking of gold always gives me concern. How can it not? But the miners, which oftentimes lead gold itself (why or how, I can’t say exactly) have been behaving better than gold, indicating that it won’t collapse from here. The small commercial short position suggests that too, but we can’t know for sure if that is what will happen, though if miners were also making new lows I’d be a lot more worried than I currently am (and I’d have smaller positions). Hope that makes sense.”
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***ALSO JUST RELEASED: Bill Fleckenstein On The Wild Trading Action, Plus A Bonus Q&A On Gold CLICK HERE.
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