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Stock Market Setting Up to Get Flushed?
Daily Rap 10-09-2014
Let me start by saying I specifically didn't say much about yesterday's FOMC communiqué because I don't think it broke any new ground. What it did was make it crystal clear to objective observers that the Fed is comprised of doves who really don't want to tighten at all.
Fed Minutes Seem Like Hours
Having said that, in the past 20 years they have demonstrated almost no understanding of financial markets or the economy. Thus, they may actually believe that the economy is stronger than it is because they, along with others, are so busy extrapolating the second-quarter strength rather than averaging Q1 and Q2. Plus, when one looks at the rest of the globe it is hard to be particularly optimistic about economic prospects, nor does...more
Last year's posts for Ask Fleck
Q: "In both those cases, when the mania exhausted itself, that market collapsed and took most other assets, the economy, and confidence in the Fed with it."
Yes, but the confidence in the Fed was lost as a result of their demonstrable inability to control the market. Confidence was never lost to the degree you are apparently looking for on this round. Maybe what you see is actually a "Confidence Mania" evidenced by the low VIX and continued reverence for the Fed by most of the investment community? If that is the case then we will need a scenario where the Fed demonstrably loses control to burst the "Bubble of Invincibility". I just don't see the setup for that unless Q4 doesn't work. Where am I going wrong?
Fleck: "Yes, but the confidence in the Fed was lost as a result of their demonstrable inability to control the market. Confidence was never lost to the degree you are apparently looking for on this round." That is not accurate. We don't know precisely how confidence was lost and I'm not looking for anything different this time.
Q: Hi Fleck:
In a recent blog from Ritholtz he opined that an argument of the "goldbugs" was that the Fed had expanded its' balance sheet to $4T and that would eventually fuel inflation.
He countered that the Fed could just let all the assets roll off as the average duration is only 7 years.
If they just hold to maturity does it make any sense that they would just sit there with that money on the balance doing nothing?
Fleck: He is delusional. If they let them roll off it is the same effect as selling them into the market, only the Treasury will do it.
If a crash comes on top of this weakness we have been seeing in equities over the last several weeks, might not the gold and silver miners also continue down substantially especially if no more QE is announced?
Fleck: I just answered that exact question in the last three days. Please, I know that it matters, but I can't keep answering the same questions. Hot money was long gold in '08, it is short gold now.
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