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LDI: the New Subprime?

Daily Rap 09-29-2022

While the party created by yesterday's BOE intervention didn't last long (more about that below), I thought I would touch on what triggered the panic on the part of the Bank of England. It was caused by "LDI," or liability-driven investment strategies. This arose because there was no yield to be had thanks to ridiculous central bank policies of NIRP and ZIRP, which were exacerbated by QE. Thus, people who had long-tailed liabilities, whether they be insurance companies or pension funds, had no way to achieve their returns without taking an ungodly amount of risk. And that's what they did, because if you tried to be disciplined and not do the wrong thing, you would have been fired for underperforming.

Today's Special: Central Bank Surprise This is...more

Last year's posts for Ask Fleck

Q: Bill:

Things are getting more and more interesting, no? Currency chaos, bond markets around the planet getting crushed, equity markets looking weak and unable to rally even given their oversold status, lopsided sentiment reading, etc., and lo and behold a bid in gold. Does this bid have some staying power. I’ll guess we’ll watch as the story continues to unfold.

Oh and I read this morning that the BOE blinked. Wow! This central bank action reminds me of some of my horrendous trades of late. And the Cbs still have credibility. I guess they are on double secret probation.

Love skins insights (your’s as well) and the repartee between you two.

Fleck: BoJ was first to panic, then the BoE. Next will be the ECB, then the Fed.
(posted: 9/28/2022)

Q: japan and england currencies are crashing against the dollar. you predicted that the US could lose control of the printing press as investors sell treasuries causing the yields to spike.

my question: as investors sell treasuries, where do they park their money? what is the safe haven place if all currencies are bad? there is not enough gold to go around.


Fleck: The bond market is trying to take away the printing press from those two and the Fed to some degree. Who knows where they will park the money, but some will end up in gold for sure at some point. But remember, a lot of money is just lost.
(posted: 9/28/2022)

Q: Bill,

Is NFLX a potential short that you would hold through earnings? Did you get in yet? I don't do much with individual stocks on the short side. This year I have been in and out of shorts on XRT, XLY, IYR, XHB, ARKK, HYG, BITO,, TSLA, QQQ, and SPY. The only two I have used recently was QQQ Sept 8 through 12th. That one I scaled in at the end of each of those three days, and then got the nice rug pull. The second I did recently with SPY once we broke below that trendline going back to June. Stayed short even through that fed rate hike because we have yet to see employment data plunge nor have they even barely put a dent in inflation, so I handicapped it thinking we would get continued hawkishness. The reason I switched from QQQ to SPY is that it seems like we are at the stage of this process where everyone is getting whacked, not just the Garbage stocks.

Fleck: I have traded NFLX several times in the past week. I have no idea if I will have it on during earnings at this juncture.
(posted: 9/28/2022)

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