On a day when the U.S. dollar fell more than 1 percent and crude oil rallied 1.5 percent, we are now having to deal with events never seen before in history.
By Bill Fleckenstein President Of Fleckenstein Capital
August 16 (King World News) – Overnight stock and bond markets both lost a little ground, which is something we have not seen very often lately. I don’t think that means much yet, but it was nice to see that markets can actually go in both directions, even if just modestly. Apparently, that undertow put a little pressure on our stock market, as it was a bit weaker from the opening, and through midday the Nasdaq had lost about 0.5%, with the Dow and S&P doing a little better…
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As per usual, that dip was bought, but the rally basically went nowhere and the market closed with small losses you see in the box scores.
Away from stocks, green paper was weaker, though it did have a strong bounce early when Dudley “Do Right” of the New York Fed made the laughable statement that a rate hike was still possible in September. I will repeat what I have said so many times, even though I am sick of doing so: how any of these Fed heads have any credibility is beyond my comprehension, but obviously they do or markets would not be where they are.
The Big “If”
Put another way, if these bureaucrats were recognized as the incompetent troublemakers that they are, the S&P would be far lower, bond yields would be higher (even allowing for the flight to safety that would likely ensue in a stock market meltdown), and the price of gold would be a lot higher as well. But we don’t get to deal with world we want, we have to take the one that we get. In any case, after the Dudley bounce, the dollar returned to sinking, though it did not make new lows for the day (not that that matters much).
Turning to the other object of desire these days, that being fixed income, U.S. bond yields followed the rest of the world’s and rose slightly. Oil was 2% higher, and the metals, which had gained about 1% early on, gave up those gains about back to flat (silver actually lost 0.5%) in the wake of Dudley’s hot air, but they then recovered, with silver closing flat as gold gained 0.5%.
They Might Be On To Something
I’d like to take a moment to talk about the quasi bull-bear debate. What I think is fascinating is that, while the number of folks who are bullish or forced to be bullish regarding stocks is extraordinarily large, in my 35 years in this business I don’t think I’ve seen such unanimity in the small subset of really extraordinary investors. Just to name a few, we now know, based on 13D filings, that Stan Druckenmiller, George Soros, Carl Icahn, and Paul Tudor Jones, among others, have very large put positions or have stated that they are bearish.
It is not very often that you get to know, essentially in real time, what guys with their pedigree really think. And as I said, I don’t recall another period when they were all “bear-ed” up at the same time. My guess is, they are using puts so they can try to control their risk because they know, as we do, that we are in uncharted waters, and just because the market is a horrible risk/reward proposition and that the ending will be ugly, nobody knows when that will be, nor does anyone have a road map, because we are having to deal with events never seen before in history.
About the only place you could find even more high-quality investors still in the minority with the same positions would be in the gold market. Of course, as we have learned in that market, the quality of the investors doesn’t tell you anything about the timing, but it often does indicate whether you will be right.
Included below are two questions and answers from the Q&A’s with Bill Fleckenstein.
Bonus Q&A
Question: Hello Bill. Please try to answer this the best you can. Why does this stock market continue to ignore all the bad news out there and keep grinding higher? Why is everyone jumping on the bandwagon that this market is in the process of a melt up? I just keep thinking what Jim Grant has been saying for the last few years….. “This will end in a disaster”. I doubt he will be wrong.
Answer from Fleck: “Because of all the monetization going on around the globe, which has driven rates to zero and below, period. That is why. There is no road map because it has never happened before, ever. It will end in a colossal crack up. People are jumping on because they’re greedy and are afraid to miss out.”
Question: Bill: My girlfriend works for Macy’s and she will be laid off soon. I told her sometime ago that online shopping was destroying physical retailers. She now says that she will never buy anything online unless she absolutely has no choice. Question is, at what point the old economy is destroyed enough so that nobody has money to buy anything in the new economy? With her probably forced now to go into a near to minimum wage job, she won’t have any money to spend shopping on either physical stores nor online…Crazy not? Same thing you can say for many other type of jobs that will be replaced in the future by robots or computers or even more ” free trade” agreements…where are these people going to find jobs?
Answer from Fleck: “Productivity and progress are not to be feared, though giant misallocations of capital are. A hundred years ago we were an agrarian society for much of the country, those jobs are gone, but others were created. Bubbles are the real danger and we have had them in spades, thanks to the Fed.”
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