The Aftermath Of This Mania Is Going To Be Extremely Brutal

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kingworldnews.com

With the Nasdaq hitting all-time highs, today one of the greats in the business sent King World News a fantastic piece covering everything from the chaos in Greece to gold, silver, the Great Depression, plus a remarkable bonus Q&A.

By Bill Fleckenstein President Of Fleckenstein Capital 

June 19 (King World News) – Yesterday's dovish-ness on the part of the Fed appeared to inspire a worldwide bond rally. I say "appeared" because I can't quite believe that the fact that the Fed is going to do nothing until the fall (after folks had expected them to begin raising rates in March) really caused world bond markets to lift, but they did rally, so that's my best guess as to why (obviously, the Greek fiscal soap opera continues to lurk in the background)….

No News Is Good Enough

 

Given the move in fixed income I would have expected European equities to be stronger than they were, as they were just marginally higher. Stocks here, on the other hand, exploded. Apparently there was more angst built up about what the Fed might do than most of us might have guessed, and the market gained about 1% in the first couple of hours. The pace of the rally slowed a bit, but by day's end the Nasdaq had gained almost 1.5% to hit a new all-time high, as the S&P/Dow added over 1%.

And The Dollar Is In Trouble

Away from stocks, green paper was weaker and the dollar continues to look to me like it is finished, and well it should be, given the fact that the storyline was so flawed. Nonetheless, even if that's true, it probably won't actually matter to any asset class, except perhaps gold, for some time. Fixed income was lower, oil was slightly higher, and gold gained 1%-plus, while silver was only 0.5% higher.

Included below are two 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, any explanation of why the volatility we have witnessed in every asset class, including international equities, has been absent US equities? And do you think this continues?

Answer from Fleck:  "No good explanation, but no, it will continue until psychology changes and that could be at any time, but is not predictable."

Question: The Fed on Q1: Confused? Deceitful? 

"If Fed believed Q1 GDP was due to transitory factors, it would expect catch-up in subsequent quarters. Instead it slashed 2015 GDP estimate." — Caroline Baum 06/17

Answer from Fleck: "If they were at all honest, they'd ask why they can't get any bang for the all money they have printed."

Question: Fed credibility eroding a bit faster among the influential?

 

From WSJ Editorial Board 6/18:

 
"…The Fed cut its “central tendency” for annual GDP growth to 1.8%-2% for this year, which is a decline from its growth forecast of 2.3%-2.7% in March, which was a decline from 2.6%-3% in December. …
This has become standard operating practice going back for nearly all of the current recovery. The Fed has consistently estimated that its near-zero interest rate policy and bond buying would produce faster growth. Yet each year yields disappointment. Then the Fed uses the reality of slower growth to explain why it needs to continue the policies that haven’t produced faster growth. The Fed has been in a perpetual policy feedback loop….
Maybe the committee should consider that its extended indecision is leading to economic uncertainty that is hurting investment and thus contributing to slower growth. A fed funds rate of 0.25% or even 1% is still extraordinarily accommodative policy, so why not just go ahead and do it?"

Beware careful what you wish for.

Answer from Fleck: "The WSJ can say what it wants, but the Fed is going to keep pursuing its same failed strategies no matter what."

"The Aftermath Of This Is Going To Be Extremely Brutal"

Question: Response to advisor in Vancouver – I am a top tier advisor at a wirehouse in the midwest. I have a pretty good history of raising new assets each year (for 20 years).
This year I am at net outflows for the first time. At end of 2013 I moved portfolios to a decent amount of t-bills, gold ETFs, and miners for a lot of the reasons discussed here.
Complacency is rampant. Nobody learned anything in the previous two bear markets. Everyone is prepared for one economic climate- economic growth and low inflation. Look at the portfolios being pumped out by the robo advisors-there is no fear.

Answer from Fleck: "Thanks for the input, the aftermath of this is going to being extremely brutal."

Question: Two things: Do you think the FED raises this year?
Please tell me in your own words how the average Japanese citizen has faired with the Government printing like crazy over there. It seems to me I have some people around me that think QE works.
Thanks for all you do.

Answer from Fleck: "Probably not…the average Japanese person has not benefited at all (unless they own a lot of stocks) the same is true of the average American."

Question: Hi Bill, banks, real estate, stocks, 1929 all mentioned today in Ask Fleck. So, may I add a story.

My grandfather owned 18,000 acres of prime pine forest from Garner to Cary N.C. Had $100,000 in stocks in prime companies…all the very best. Had S30,000 in his best friend's bank. Big tobacco and timber was his heritage.
He was also a stubborn mule and ignored good advice. Well, the market crashed, real estate crashed, but he still had money in the bank until he went to go get it to pay real estate taxes. He had parties who wanted to buy timber, but this mule head insisted the markets and everything would be alright and said nope, gonna hold on.
Well the taxes on the land came due, his friend, the bank president, would not let him have even enough cash to pay the tax on 5 acres where his home was. The bank closed and he lost all the money, the timber buyers were not so interested anymore, his stocks were worthless because no one had money. The family became as broke as the bums on the train.
So, the moral of the story is…don't be a mule headed ass and think you can outsmart the writing on the wall. When the signs are there and you think you have yourself covered is just when you don't.

Answer from Fleck: "The longer a mania goes, more people succumb to it, and the worse off everyone will be when it ends."