Druckenmiller’s Latest Move In The Gold Market And A Grand Illusion

As the Dow remained near 21,000 and the price of gold surged, today a legendary short seller discussed the latest move in the gold market by Druckenmiller and a grand illusion.

By Bill Fleckenstein President Of Fleckenstein Capital

– The current round of insanity has reached a fever pitch over absurd concepts such as how wonderful it would be to become the first $1 trillion company, or which one of the FANG stocks would be the first with a stock price of $1,000…

A Grand Illusion
On that note, today’s Financial Times carried a lead article above the fold headlined, “Amazon beats Google to $1,000 a share,” as if that meant anything. The author obviously knows very little about stocks, as he noted in the story that Jeff Bezos, “…has shunned share splits that make stocks more affordable.”

I know there is a lot of lunacy or various urban legends that pass for knowledge, but the fact is people have a certain number of dollars to invest and they can invest as much of that money as they want, regardless of the share price.

We saw similar bouts of uncritical thinking in the 1999 stock mania, and in that period stock splits were all the rage. In this go-round the craze is not splitting. Which just goes to show you the power of psychology in setting prices at any given point in time.

When the Chips Are Down
Turning to said prices, the early going saw the indices mildly red, and even chip stocks were sold, despite the fact that Analog Devices was a winner at the silly game of beat-the-number. Initially, there was an attempt to ramp all chip names, but that didn’t last long. In the afternoon, not much happened, and the market closed with the miniscule losses you see in the box scores.

Away from stocks, green paper was weaker, oil lost 3%, fixed income was higher, and the metals were mixed, with silver losing a modest amount to gold’s 0.5% gain.

Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.

Question About Crude Oil
Question: Hi Bill:  I think I understood Friday’s question about WTI(C) being a possible model or prototype for other markets, and I thought it was a good question. What the reader was saying, I think, is that oil prices were levered artificially for years by the same types of market manipulation that has sustained most everything else. Then, several things happened (capital stayed cheap, the Saudis didn’t reign in production, and fracking took off). The combination was such that real market forces trumped central planning, low rates, market manipulation, etc. The reader was asking if all the artificial stuff will fail in a similar way in other markets (I’m assuming stocks and bonds, in particular), with the result that real market forces begin to predominate there, too, including overriding attempts to manipulate the market back higher. If I have succeeded in clarifying the question, I also would be interested in your reply (which I think will be “yes,” if I’ve understood you so far).

Answer from Fleck: “That is a brilliant question, and I hadn’t thought about it before, which is probably why I didn’t get it. Great analogy, and my answer is, yes. When markets that have been manipulated (whether by CBs or cartels) finally break free, they can then go anywhere, as price discovery is once again alive and well.”

Druckenmiller & Gold
Question: Hi Fleck: As far as Druckenmiller’s current view on gold, it appears Duquesne Capital bought 2.85 million shares of ABX in q1 2017.  While that is not a huge position for him, he probably wouldn’t have opened that position if he hated gold.  His investment vehicle also continued to hold about 900,000 shares of AEM in the 1st quarter.

Answer from Fleck: “Two good choices, IMO  Thanks.”

Wild Bitcoin Trading
Question: Bill, Bitcoin Saves The World I noticed this story on CNBC and was curious about the line that states:  ….”Governments are potentially having long-term issues with debt repayment, and the world is suffering so much debt. Maybe the world needs an alternative — in the sense that [bitcoin] is an asset-backed currency with limited supply,” he told CNBC’s “Capital Connection” on Tuesday. Do you know what that statement about “asset-backed” means?  Is it? And then there is this: This Time Is Different It’s different this time!

Answer from Fleck: “Asset-backed? It’s a math formula, and there are potentially an unlimited number of various crypto currencies. You’d have to live in the twilight zone to think these “currencies” will solve any debt problems.”

King World News
6/2/2017