As we move through mid-October trading in global markets, today Bill Fleckenstein discussed the recent weakness in the gold, silver, and mining share markets.
By Bill Fleckenstein President Of Fleckenstein Capital
October 13 (King World News) – The Chinese yuan upset the apple cart and caused a spill in world equity markets, as it fell for the fourth day in a row and is now at the lowest level since late 2010. It was interesting that the prior weakness earlier this week was largely ignored, although that obviously was not the case last night. World bond markets, on the other hand, bounced, as I suspected they would once we saw some equity market weakness. Again, the real question is whether the bond market is trying to change its trend or is the recent decline just been noise, and I don’t think we will have a sense of the answer until we see how bonds respond to a lower equity prices and ultimately to QE4…
Having said that, clearly we need a turn in equities to begin to test out any sort of thesis and we are now (maybe) finally getting it. The stock market has built up a very brittle structure on a combination of hot money in the form of people chasing performance or trying to find yield, layered onto indiscriminate ETF buying, and algo-related nonsense. Despite the brittleness and potential for trouble, however, the structure has not been tested since it almost broke last January before recovering. Now the equity market is once again in a very vulnerable spot and the only question is whether we can really see it accelerate to the downside. Intellectually, it ought to, but until it does that doesn’t matter.
In any case, turning to the action, the market lost about 1% in the first hour before chugging higher to get back to flat, only to sell off in the last half an hour, closing with the modest losses you see in the box scores.