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.
As 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.
As to the Fed "not having much choice in the wake of a financial meltdown" -- there, in this one sentence, is the lie... and the catalyst for the 'invented' and now 'necessary'... solution.
If you start with the wrong premise -- one will always come to the wrong answer.
We tend to speak of the "financial meltdown" as though it were something that "just happened" due to some metaphysical and mysterious series of events, that was out of the control of man.
Nothing -- certainly nothing in the world of men -- just "happens."
Our government does not spend 1 Trillion dollars per year more than it takes in...by accident. The figures are carefully gone over and looked at beforehand -- then they go ahead and do it anyway. (As a note -- even this crushing, accumulated 16 Trillion debt was at 9 Trillion even before the "financial bailout." So...even that was not "the reason")
The laws preventing investment banks from going on a free-for-all were not removed...by accident.
Predatory lending to anyone with a pulse was not engaged in by accident, or "circumstances beyond our control."
Credit default swaps were not engaged in... Just because...
All of the events above -- and many hundreds more, are all carefully engineered to bring about the desired result.
Once the "problem" has been carefully created -- then, of course, there "is no choice but to..."
This is where our Government (elected or no) --- stands by with the ready "solution" that now must be engaged in -- to bring about the desired result.
...and, why is our current mess the "desired result?"
Instead of disbanding the Fed and printing our own money, as called for in the US CONSTITUTION...
Is this the conclusion we come to, to now realize our our terrible error, and return to the supreme law of the land, the US Constitution? Well, not exactly. However we do come to the exact conclusion that was engineered from the beginning: "look how much we need the Fed" to save us from this terrible disaster that "just happened."
To subscribe by check (yearly subscription):
Send your check or money order for $120.00 to:
Fleckenstein Capital, Inc.
731 McGilvra Blvd E.
Seattle, WA 98112
if the market is going to crash why would anyone want this garbage whats the deal Fleckenstein
here is a man that has lost his tail in the market and i bet he went the wrong way on his options
the fool here is bill why people let these fools invest their money i will never understand
This is not going to end well.
Watch the collapse in real time here >>> http://www.dailyjobcuts.com/
Fleckenstein, get a haircut you hippy!!
STOCKS are the place to be long term.
If short-selling was banned, we would all be wealthier and you wouldn't have a column.
If this column is meant as entertainment only, I am not entertained. There is no science
or business or any insight to this column other than doom and gloom.
OH SWEET JESUS, BIG RALLY EQUALS MSN MONEY SHORT-SELLERS COMING OUT OF THE DARK CORNERS SCREAMING ARMAGEDDON because they lost money AGAIN betting against America !!!!
Sorry Mr. Bill, you screwed up again. When are you, Mayhardari and Jubak gonna learn not to short the market during a BULL RUN? Notice that Bill owns gold too. What happens to gold if we hit DOW 17,000? That's right - gold gets punished. MSN Money shouldn't be a bully pulpit for short-sellers to influence us with false information that helps them with "their" investments. MSN Money is supposed to be helping the reader!
Bill Gates, I know you are sitting on your island reading these posts and laughing. The sad thing is you are the scion of a losing company. Nobody wants windows or a windows phone. Also, you have let MSN Money go to the dogs. Fire all of these losers and go find 2 young Harvard Business School grads and 2 MIT grads and let them start analyzing the market. I get absolutely nothing from these columns that I can profit from. Fleckenstein, you suck.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
ABOUT BILL FLECKENSTEIN
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.
[BRIEFING.COM] S&P futures vs fair value: -4.80. Nasdaq futures vs fair value: -7.80. U.S. equity futures remain below their flat lines, which has been the case through the course of the night. If the current indication holds, the S&P 500 will take a step back after climbing 1.4% during the first two sessions of the week.
There was no market-moving data released this morning, but the FOMC will reveal the minutes from its latest policy meeting at 14:00 ET. Due to the ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|
As the devil-may-care bravado of Wall Street marches on, history warns that -- in the end -- there will be the devil to pay.
VIDEO ON MSN MONEY
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'