Bill Fleckenstein Reopening Short Fund; Sees Opportunity Later this Year

Thu, Mar 20, 2014 - 1:33pm

A slowdown in China, further reductions in Fed stimulus, and an eventual crack up in the bond market have raised the possibility of a larger correction later this year, said Bill Fleckenstein, President of Fleckenstein Capital.

Bill closed his short fund in March of 2009 when the market bottomed, but told Financial Sense Newshour that he’s now in the process of restarting it. “I wouldn’t go short just yet,” he said, “but it could be interesting again sometime later this year.”

With regards to any type of recovery, Fleckenstein said that falling prices in base metals are a sign that global growth is slowing, especially in China, and that we shouldn’t expect to see a pickup “in the next six to nine months.”

On the global bond market, Fleckenstein explained:

I think the world’s bond markets are a complete joke…but QE has benefitted them and I think we’re in the early stages of the US bond market not necessarily cooperating with the Fed, which is why rates have gone from 1.60% to 3.0% to now 2.60% in the last year…eventually bond markets will crack, but that hasn’t started yet; and when they do, that’ll be the end of the Fed and central banks’ ability to print their way to what they believe is prosperity. And that’s the endgame for this big experiment—that’s in our future, but we’re not quite there yet.

On how we can’t leave zero interest rates, he said:

Kyle Bass made the great observation that you can’t leave ZIRP—you know, the zero interest rate policy—and I don’t think you can [either]… It’s really up to the world’s bond markets to stop this lunacy that the central banks have hoisted upon everybody…a small amount of too much money printing, which was child’s play, gave us the ’99 stock bubble, more of it gave us the real estate bubble and now we’ve got a drastically mispriced Treasury market thanks to a trillion dollars of QE last year in the US alone.

On what tapering means for the markets:

I think it’s so amazing that the Fed is backing away from QE and the markets act like it’s no big deal. I mean, it’s going to be a big deal and they will be prevented from continuing to taper at some point. And then the discussion will be raised: Well, if the Fed is not effective at generating jobs and GDP growth, and it can only print money and can’t stop printing money, maybe we have a problem...You cannot have this kind of crazy, maniacal policy where the Fed blows up everything, then comes back and does the same thing as before but only in bigger size and people think that as progress or success—it’s just madness!

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Audio link: https://www.financialsense.com/financial-sense-newshour/bill-fleckenstei...

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