With the dollar and gold rising along with the Dow, we are now witnessing something no one has ever seen before and the scope of it is unfathomable.
By Bill Fleckenstein President Of Fleckenstein Capital
February 21 (King World News) – Overnight markets have essentially ceased to matter, so I am not going to comment on them prospectively until something occurs that might make a difference here.
As for our market, it blasted off out of the starting gate and managed to gain a little over 0.5% in about 90 minutes. Once again, there was no proximate cause for the partying, other than the fact that the market was open. In the afternoon, the rally sputtered, tried to roll over, but then regained its footing and went out just off the day’s highs…
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Away from stocks, green paper was quite strong, oil gained 1% and fixed income was flat. The metals were somewhat volatile, initially losing 1% then turning slightly green before closing with small losses. The miners, too, saw a fair amount of motion, with some stocks seeing very big swings. Pan American, for example, initially dropped about 3%, then rallied to up 2%, before finishing 1% higher.
You’re Soaking In It
Now I’d like to touch on a point I’ve made many times, but would like to reiterate, that being the amount of money that has been printed by the world’s central banks is something no one has ever seen before, and the sheer scope of it is unfathomable.
While the U.S. authorities since 2008 have created roughly $3 trillion out of thin air, which continues to be rolled over on the Fed balance sheet as bonds mature — thus creating “fumes” — many of the rest of the world’s central banks have done the same, and in the aggregate something north of $10 trillion has been conjured forth.
Think Big
There is no one on earth who has any idea how this will play out because nothing close has happened before. About the nearest thing we can find is the Y2K liquidity injection in December 1999, but that was only on the order of $35 or $40 billion and was eventually taken back out, although in my opinion that modest amount of temporary free money led to the blow-off of the late 1990s bubble, which ended in March 2000. I shudder to think what could (not will) happen with an amount that is more than 200 times larger when weighed globally.
Knowing that it was unknowable how crazy things could get has kept me from wanting to be short, ex a few stabs in the last few years. By the same token, knowing how unstable it was likely to be has prevented me from wanting to join the party. None of this is new news, but I thought I would bring it up because it feels like the market is so untethered it may just want to blow off. I have no idea what that might look like, other than to say it might be unprecedented and, after a couple of decades of historic market motion, that’s saying something.
Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.
Bonus Q&A
David Einhorn On The Gold Market
Question: You mentioned that you were unable to add to your PAAS position because it was “maxxed out”. At approximately what percentage of your portfolio do you consider a position to be maxxed out?
Answer from Fleck: “It all depends, but anything between 5% and 10% or higher is pretty big, and means you should be very careful… My PAAS position is even larger.”
Question: Bloomberg on 2/20/17 begins to understand: “What works for gold in practice rarely works in theory. The last three U.S. interest-rate increases that should, all other things being equal, be bad for the metal have seen prices jump in the months that followed. Gold is up about 7 percent since the Federal Reserve raised rates on Dec. 14. It jumped 13 percent in the two months following the last increase in December 2015 and 6 percent the previous time way back in June 2006.”
Answer from Fleck: “Except that Bloomberg’s theory is flawed… Rising rates historically have not been negative for gold.”
Question: Hi Fleck, In all seriousness, the disconnect between news flow (as u noted on Friday) and stock market is just mind blowing. If stock market is a broad barometer of general economy and expectations for next 6 to 12 months (discounting mechanism), it is clearly in a different planet. To discard the way it is, the uncertainties and a truly different administration is incomprehensible (if first 4 weeks are this, cannot imagine what next few months will be like!). I was not following news in technology bubble, but I seriously doubt there was this disconnect. I want to be humble when I say this as a non-professional, but I hope this mania (??) will present a good opportunity to make money on the short side. Regards.
Answer from Fleck: “In the 1999 stock bubble, the disconnect was more about individual insane valuations… This disconnect is different in many ways, but there will be plenty of chances to make money.”
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