Bill Fleckenstein: Which way is the market headed

Contrarian Chronicles6/4/2010 6:00 PM ET

Market spinning but going nowhere

After their recent gyrations, there isn't a lot of motivation to either buy or short stocks. Plus: What's next for the tumbling euro?

By Bill Fleckenstein
MSN Money

The market has been no stranger to stepped-up volatility and treachery. How else to explain the not-infrequent recent sessions whereby it jumped 1% in an instant or dropped 1% to 1.5% in essentially another blink of an eye?

As to what this market action means, I sort of defer to Jason Goepfert of His data appear to suggest that in the worst-case scenario, we will see a trading-range market without any clear direction. (In my opinion, that will be followed at some point by a failing rally, but he currently does not share this view.)

Jason seems to feel that a plunge below 1,040 to 1,050 for the S&P 500 Index ($INX) is a low-probability event in the near term. It did fall to 1,065 on Friday.

I certainly see no reason to disagree with that, though I don't see much of a reason to have an opinion either way. From a risk-reward standpoint, it seems too dangerous, and not really all that attractive, to buy stocks right now, and it still seems too dangerous and tricky to short stocks.

Mining-business-friendly versus mining-business-clueless

That puts me back to focusing on assets that benefit from government money printing. Gold, for example.

If you're a mining company in Australia that turns a profit digging up the ore, the administration of Prime Minister Kevin Rudd wants a greater piece of the pie. Compare his recent and wrongheaded mining-tax proposal to the well-reasoned view of Canadian Trade Minister Peter Van Loan, who in a speech last week said:

"Our Canadian economic strategy has been low-tax low-cost to attract (my emphasis) business investments. Canada has, if not the best, certainly one of the best mining sectors in the world, and we will continue to ensure that Canada remains as competitive as possible for those companies to do business. So, I am confident you will not see a tax like that in Canada."

Other countries may also decide that the carrot works better than the stick. From what I hear from my friend Comrade Kuppy, who's been visiting in Australia, Western Australia is nearly ready to secede in revolt over the proposed mining tax, but the country's eastern regions have more votes. How the tax situation plays out is not knowable at this juncture. But I continue to feel it's unlikely to become law in as onerous a fashion as the Rudd administration has proposed. (Learn more about the proposed mining tax through Bing.)

Where is the euro headed?

Finally, some thoughts on the euro. Just over a decade ago, the currency made its debut to great fanfare. Now it's come to this: What will the endgame for the euro be?

I've given that question quite a lot of thought. It's been my belief that the European Central Bank, or ECB, will have to print money, or that Greece or Germany will have to leave the European Union. That the presses have already started to roll illuminates what might come next.

Become a fan of MSN Money on Facebook

A long, lingering death is one possibility, whereby no decisive action is taken -- for example, a strong or a weak country leaving the EU. Perhaps we'll just see bickering or partial solutions while, slowly but surely, the ECB prints even more money to try to bail out the banking system in Europe.

At some point, the restructuring of weak sovereign credits seems likely. But that can't happen fast enough. Consequently, it could be some time before the euro finally falls apart or some country leaves the EU.

That is just another reason people the world over are choosing gold.

A last note

Finally, I participated in another Eric King interview a couple of days ago. As always seems to be the case, Eric found new thought-provoking questions for me to answer.

At the time of publication, Bill Fleckenstein owned gold.

More from MSN Money

Rate this Article

Click on one of the stars below to rate this article from 1 (lowest) to 5 (highest). LowHigh