The great fake rally of 2013

The stock market's strong start to the year tells us more about the investing crowd's need to believe that all the big problems are behind us than it does about the potential for a strong economy.

By Bill_Fleckenstein Feb 1, 2013 3:01PM

Statistics arrow in three dimensions © Polka Dot, Jupiter, GettyAs the collective worldwide equity rally soldiers on, folks across the board once again have suspended disbelief to conclude that all problems are solved (or at least contained).

 

Whether it's Japan's deflation (which folks believe will be conquered by the money printing there), to the mess in Europe, to America's economic, financial and monetary woes, everything is deemed to be on the mend. Thus, money is being thrown at stocks, and the year has certainly gotten off to quite the start, with the major indices all running off notable strings of up days.

 

It probably won't be long before Bubblevision (aka CNBC) gets all lathered up about the "just right" Goldilocks economy yet again, as it has during every period in the past 15 years when money printing warped markets and the economy. (More about that later).

 

Mr. Market loves his new oversized racket

In short, a superficial analysis indicates we are in a bit of a sweet spot, so enthusiasm for the stock market continues to build. But along with higher equity prices has come another bout of collective amnesia.

 

Meanwhile, the world's bond markets have not been clubbed yet, as 10-year Treasury bonds keep making higher highs and lower lows (in interest rates), and last week traded at their highest level since last spring.

 

The bond market is now lower than it was when the latest rounds of quantitative easing began, but it will still be some time before it truly disciplines the Federal Reserve by taking away the printing press (which will ultimately punish equities as well). However, currently most investors are able to look past rising rates, shrug their shoulders and say, "Hey, rates are still really low, and they are rising now because the economy is better." (That, too, is a Goldilocks view.)

 

Who needs gold . . .

As for the precious metals, folks continue to decide they don't need gold when equities are working and all the problems have been solved. (They haven't been, but that is irrelevant at the moment.) Contrarians should take note of the difference between the psychology toward stocks in general and mining stocks or metals, as they are at opposite extremes.

 

On the subject of the metals, I thought I might take a stab at what has ailed gold for the past six to 12 months. My suspicion is that people have concluded that they don't need the metals. Not that Americans had ever really decided they needed much exposure to begin with.

 

But for now, Europe appears to be on the mend. (Note that I said "appears," because while European Central Bank President Mario Draghi's money printing and promises to do whatever it takes have papered over the problems there, but they have not gone away.) The structure of the eurozone is unchanged, and unemployment is enormous there as well, so the fiscal and economic pressures remain quite high despite the current improved mood.

 

And here in America, there was so much angst over what was really not that big a deal -- namely, concerns over the so-called fiscal cliff and the debt-ceiling wrangling -- that getting past those has produced a knee-jerk response and has caused people to totally ignore the massive government debts that are not being addressed.

 

. . . when we’ve been fooled?

Thus, we are in a period where money printing has supported debt markets and boosted stock prices, but none of the massively negative consequences from the flood of money has been seen (leading many people to conclude that there won't be any, which is wrong). No currencies have been drastically weak, because all G-7 currencies are bad, and inflation hasn't really started screaming, while people are willing to overlook what inflation exists -- for now.

 

So we are at a moment in time where the act of money printing no longer causes gold to move higher, since it is boosting stock markets and lulling people to sleep. However, all the drastic consequences are staring us in the face and will soon start to matter.

 

But just as it is difficult to tell in advance when the madness of crowds will exhaust itself (as we saw during the equity and housing bubbles), it is difficult to say when the "crowd" is going to realize that just because stocks are higher doesn't mean we aren't headed for a train wreck in America. Eventually the Fed will no longer able to print its way past trouble, not to mention the fact that inflation is certainly headed higher.

 

For Wall Street optimists, the glass is always half fool

To sum it up, the majority of investors are being head-faked, as the effects of money printing have "helped" markets and economies, but the consequences have yet to be felt. Thus, they have erroneously concluded that stocks are the place to be, everything is OK, and who needs gold?

 

That conclusion is incorrect, just like the idea that you will always make money in stocks over time, or that home prices never go down or other crazy notions that large groups of people cling to from time to time.

 

But that's where we are, and it will end only when it does. I, for one, am pleased that we have at least reached the phase where the bond markets are no longer abjectly cheering money printing, because that is the first sign of the beginning of the end of this insane epoch in financial history.

 

At the time of publication, Bill Fleckenstein owned gold.

148Comments
Feb 2, 2013 12:31AM
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The sky fell in 2008 and now look at it. The market is the place to make money if you know what you are doing.problem is most people are always on the doom and gloom. I laugh all the time at these posts of people that whine and cry,some real dummies out there!
Feb 2, 2013 12:24AM
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this is crackpot journalism at its worst....
Feb 2, 2013 12:04AM
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the sky is falling the sky is falling.is there anyone left that cares.bring on the chaos and lets get this party started.lets do wealth redistribution the old fashioned way,with a rope.if it was good enough for the russians,the french and now the egyptians its good enough for us.i for one have nothing to lose
Feb 1, 2013 11:45PM
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The sky is falling..The sky is falling.  I'm starting to recognize your style in print.  It's always the same.  The sky is falling.  Every once in a while, you get it right.  It's hard to tell when, though, that you have it right!  However, for the most part, you are quite amusing. 
Feb 1, 2013 11:33PM
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I wish all the political junkies would just stop writing comments; there is money to be made here! Think of all the people who pulled their money out after the crash with no entry plan. 
Feb 1, 2013 11:16PM
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THE GREAT FAKE RALLY IS OBAMA CAMPAIGN!!! THANX LIBERAL MEDIA FOR GETTING A SOCIALIST PIG RE ELECTED!
Feb 1, 2013 11:10PM
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thanks Bill, Your points are right on.
Feb 1, 2013 11:05PM
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There`s always someone who wants to piss in the punch bowl.
Feb 1, 2013 10:50PM
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It's good to see that there is someone out there willing to tell the truth at the risk of being called racist, nay sayer basically you're full of it. Thanks for telling it like it is Bill. If there were more like you it might give everyone a chance to make logical decisions financially. Until then we have to sort through all the BS.
Feb 1, 2013 10:47PM
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Darn, Bill.   I almost forgot to mention my biggest play that I bought when Obama took office.........Sirius Radio.   My  40,000 shares that I paid a little over $4,800 for are now pushing $130,000.    Keep up with the gloom and doom.   It is people like you that make life easy for some of us.
Feb 1, 2013 10:39PM
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Hey Bill........even a broken clock is right twice a day.   Keep predicting doom and gloom.   I am laughing all the way to the bank with my Ford, Bank America, Intel and others that I bought the day Obama took office!!!!!!!!!!!!!!!!!!!
Feb 1, 2013 10:00PM
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I know little about the stock market but, even for me, it's easy to see that if you go on forecasting a crash you will eventually be right and then you can stand up and screech "I told you so !!"  Economists and meteorologists are the only folks who can b e wrong most of the time and not get fired.
Feb 1, 2013 9:49PM
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This guy has and always will forecast doom. Unfortunately the one time when doom occurred, he did not predict it.

I am not in the market that much, I do not believe housing prices always go up, but it is equally foolish to be a bear all the time although it is easier to be taken seriously because although bears are wrong way more often than bulls, society seems to treat pessimists as more realistic. This is a false notion.

Reality is both optism and pessimism. A good financial advisor is both a bull and a bear depending on the information the see and interpret.

Bill Fleckstein is a bear, period. Guys like him yell fire so often without it happening, that when they finally are right, no one listens and everyone gets burned...and they get to finally look smart and say I told you so.

 

Feb 1, 2013 9:40PM
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Cont know how this bozo stays in the business. He never has anything positive to say about the market
Feb 1, 2013 9:32PM
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No matter how much those 636 fools in Washington have screwed-up our economy, they'll never have to worry about the consequences.  After-all, they can "retire" after one term in office, at full pay and all the healthcare they and their families will ever need.  As Alfred E.. Newman once said:  "What, me worry?"
Feb 1, 2013 9:29PM
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I hope it collapses. And I make a lot of money, but I hate corporate america. I f'in hate everything about it. I don't know what is worse, the government or the corporation. Either way what does it matter. I'll be dead in 40yrs and the machine will move on to the next line of bodies. Let it burn...
Feb 1, 2013 9:26PM
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This is just more hygenic posturing. Having washed its hands in piety the market will return to its manipulation. DOW at 14,000 will not be good enough. 20,000 will not be good enough. Neither will 30,000. This is a bubble, just like the subprime bubble and the housing bubble and the technology bubble. The wrinkle here will be when the bubble bursts and Wall Street wants a bailout. Hopefully, the country goes bust first.
Feb 1, 2013 9:22PM
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LOL this clown is so desperate

Im sorry but anyone who thinks this market is a bubble is going to keep missing out on money over and over and over again

Warren Buffet, "the market looks great i am 99% invested long in this market"

The clown bill feinstein, " it is a bubble, it is going to crash, recession" ----the author STILL WRONG for 6 years and counting

OUCH
Feb 1, 2013 9:11PM
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Yes Bill that is how I see things as well.  I'm so sure you are right that I bought NUGT for the first time @ 7.70 per share.  Loading up on the junior miners (gdxj) as well.  Really don't see a end to all this madness till the stock and bond market crash.  I will continue to buy gold stocks and soon will be buying silver.
Feb 1, 2013 8:43PM
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wall street can kiss my **** and so can the very rich who did this two us.....
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ABOUT BILL FLECKENSTEIN

Image: Bill Fleckenstein, MSN money

This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.

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