January 15, 2016
On the heels of the Dow plunging more than 500 at one point in the trading day and global markets continuing to get pummeled, today a legend who warned just 8 days ago that the carnage in global markets would continue told King World News that investors should expect to see an acceleration of the global stock market rout that will end in panic.
Eric King: “Bill, people are wondering if we could see a rebound next week?”
Bill Fleckenstein: “Of course there can always be a rebound but I don’t think it will carry very far — in the same way that none of the little rally attempts have carried very far that we’ve had in the past eight or nine sessions…
Global Stock Market Rout To End In Panic
Fleckenstein continues: “So I don’t think the market can rally very well at all and I think there is a much better chance that we will see an acceleration to the downside.
They managed to pull the market back over the August/September lows in the S&P but some of the other indices have already broken through those lows. So I think there is a better chance of an acceleration of the selling. And if there is any kind of a bounce I don’t think it will be very meaningful. I don’t think that the stock market can have any kind of a meaningful bounce until we either get real panic and/or the Fed rides to the rescue.”
Fleckenstein had warned King World News just 8 days ago that there would be more carnage in global markets (see below).
The first couple of years after 2008 there was a snapback after they stopped the carnage with all the programs and government bailouts and money printing. But from 2011 on, when QE3 started, that’s when we really had a gigantic suspension of disbelief. That’s when the vast majority of people really concluded, ‘Gee, these guys really know what they are doing and it’s going to work this time.’ They didn’t stop to think that it was these very same policies that got us into this mess and all we do is keep pursuing the same strategy in a bigger and bolder fashion.
The economic data has been pretty damn poor considering rates have been zero for 7 years and we monetized $3 trillion here in the United States and the same thing is going on in most of the G7 countries. So the economic recovery has been nothing and this has been a long time coming.
You couldn’t predict when the market break was going to occur but we kind of got some hints of that last year and the way the market has broken in January. Now, people here want to blame this market break on the North Korean hydrogen bomb or the Chinese devaluation and their stock market plunge. But China’s got a misallocated capital and debt problem — that’s we have and that’s what the whole world has. China has a different variation than we do and in some ways they are better than us — in some ways they are worse than us.
The bottom line is that this misallocation of capital has gone on for so long that people look at individuals like Jim Grant, Fred Hickey, or even me, and people would laugh at us. I’ve gotten quite a volume of hate mail where people say, ‘You’re an idiot. Why do you keep saying this stuff?’ Well, you don’t know how long it will take for the chickens to come home to roost, you just know they are going to have to.
So we’re at that moment now, and it’s liable to get quite a bit worse because there is no saving the market. The numbers have been bad, the speculation has been high, and the world economy is getting worse, but the Fed can’t come to the rescue until global stock markets break and break hard. Then we’ll have QE4 and in that phase we will have to see how well the Fed is believed, what they do, and what we think the ramifications will have to be at that time.
There’s no guarantee that people are going to believe the central banks because in 2008 they didn’t believe them all year, and in 2001 – 2002 they didn’t believe them. Right now they still seem to have total confidence. So the stock market has been an accident waiting to happen and now the accident is happening, and the carnage is going to play out much quicker than people think.