Legendary Hedge Fund Manager Bill Fleckenstein Says No Bond Crash Without a Dollar Crash

madhedgefundtrader's picture

My guest on Hedge Fund Radio this week is the legendary hedge fund manager Bill Fleckenstein, president of Fleckenstein Capital, based in Seattle, Washington.

Bill graduated from the University of Washington with a major in Mathematics, and joined the prestigious Wall Street firm Kidder Peabody in 1979. In 1982 he launched his own firm, following in the footsteps of the great hedge fund pioneers like George Soros, Julian Robertson, and Michael Steinhart.

He became a highly controversial figure during the nineties by warning of the dangers of the dotcom bubble. Bill stuck to his convictions and cashed in big time in the collapse that followed, riding some of his short positions down to zero.

Fleck, as he is known to his friends, was a vociferous critic of the Fed’s easy money policies during the 2000’s. He published a bestselling book, Greenspan’s Bubble: The Age of Ignorance at the Federal Reserve in January of 2008.

Fleck ran a short only hedge fund which he closed within days of the March 2009 bottom in the stock market, and returned the capital to his ecstatic investors.

Since then he has been predominantly long investments that are beneficiaries of the relentless running of the printing presses in Washington, such as gold and the Canadian dollar. He still keeps in his office a six foot high stuffed black bear, wearing a blue “Dow 10,000” baseball hat, given him by a client. Note to readers: Bill doesn’t play in the ETF space, but I have included the relevant stock symbols for the convenience of individual investors.

Bill is sitting a major position in gold (GLD) these days, both in the physical and through the major miners, Newmont Mining (NEM), Agnico Eagle (AEM), and Goldcorp (GG). Despite a fourfold return over the last decade, the barbarous relic is still hated by many professional money managers, which means it still has much further to rise. Falling confidence in “colored paper” (dollars) will just add fuel to the flames. Fleck is matching investments in the yellow metal with serious positions in silver and its miners. His target is nothing more specific than “UP”.

As much as Bill despises Treasury bonds (TBT), (TMV) at these nosebleed levels, he isn’t going short yet. He thinks we need to see a dollar crash first, and a recognition that we are in a stagflationary environment. Don’t waste time trying to call the top, because once the spike in interest rates starts, it will be “a big, big bear market,” that could go on for decades. The same currency/bond market tandem collapse logic may also apply to the yen and the JGB market. Rising commodity prices, like in copper (CU), are an indication that some real inflation is on the way.

Stocks generally are headed for a big multiple compression, but until then, are stuck in a wide trading range. One of his few long picks is Microsoft (MSFT) which has recovered from its disastrous Vista operating system launch, and is now hitting on all cylinders with a series of successful new product launches. MSFT is selling for only ten times earnings. Bill also likes Verizon (VZ), which has been running on the prospect of a big network deal for Apple’s (AAPL) I phone. Fleck hates banks because they are still depending on a bogus accounting system, but won’t short them because the government keeps rescuing them with arbitrary safety nets.

Regarding China, Bill is not in the China bubble camp, and likes emerging markets generally, but isn’t a specific investor. The Western world ruined its banking systems during the bubble, while emerging markets didn’t. The consequence is that they are booming and we aren’t.

On the currency front, Fleckenstein likes the Canadian dollar (FXC), and admires the Singapore dollar and the Norwegian kroner from afar. He also has some cash in the Chinese Yuan (CYB) because he thinks it has to appreciate at some point, but doesn’t know how long it will take to pay off.

To listen to my interview in full with Bill Fleckenstein on Hedge Fund Radio, please click here at http://www.madhedgefundtrader.com/september-13-2010-bill-fleckenstein.html .

To buy Fleck’s excellent book on the insanity of the Fed’s easy money policies and their dire consequences, please click here at http://www.amazon.com/GREENSPANS-BUBBLES-IGNORANCE-FEDERAL-RESERVE/dp/0071591583/ref=sr_1_1?ie=UTF8&s=books&qid=1284150032&sr=8-1

To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.

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SWRichmond's picture

wrong place...



Ted K's picture

I prefer to get this stuff in iTunes, whatever decade MHFT puts it up.

MiningJunkie's picture

The gold market kept rising until Volcker put a cap on the Fed window and put a lid on bank borrowing from the Fed. Loan demand was denied at the
Fed window first and then it was passed on to the consumer next. It was good ol' demand/supply which ratcheted rates higher and was nothing to do with administered rates whatsoever. it was the last time that a Fed
Chairman allowed free markets to function. The patient went into convulsions but recovered fully and led a hale and hearty life until the banisters went nuts again in1986 and let debt creation become the sole economic driver.

MiningJunkie's picture

The gold market kept rising until Volcker put a cap on the Fed window and put a lid on bank borrowing from the Fed. Loan demand was denied at the
Fed window first and then it was passed on to the consumer next. It was good ol' demand/supply which ratcheted rates higher and was nothing to do with administered rates whatsoever. it was the last time that a Fed
Chairman allowed free markets to function. The patient went into convulsions but recovered fully and led a hale and hearty life until the banisters went nuts again in1986 and let debt creation become the sole economic driver.

wintermute's picture

I am in awe of both the instant power and reach of the internet and the "wisdom of the crowds" when it comes to economic prognosis.

Until recently I was 100% with Mish on his deflationary scenario and the inconceivable way that deflation could be rapidly followed by hyperinflation.

Recents posts triggered by Gonzalo Lira now show how this can be done. And the item above echoes this. Sometime soon the "shazam" moment will occur when Treasury bonds are sold off hard - and simultaneously people will want to be out of dollars into safer assets: gold & commodities and (the few) safe foreign currencies like NOK.

Consider how many dollars are held overseas. If they started pouring back - then main street is going to see a sharp uptick in inflation and this will scare people. Velocity of money starts increasing as people want to be rid of cash. Government deficit spending now adds gasoline to the bonfire.

ZH is doing an excellent job of clearing the mists ahead. We just need policy-makers to see the same (though I do not hold out much hope on that).

doolittlegeorge's picture

I'm trying to think how '73-'74 went down.  We were done in Vietnam--burn baby burn became a way of life and not just a mantra.  Gas prices went from was it 20 cents to like 80 cents?  Seems like peanuts now.  I don't recall Treasuries getting clobbered however though equities sure took it on the chin during that stretch...until they recovered with the end of Nixon and his replacement by Ford.  Of course "the inflation wasn't all that good for the fixed income government set."  And of course "tax free muni's suddenly made an appearance as an asset class in its own right."  Then it took 5 years and "a guy named Volcker."  Suddenly "debt became worth what everyone had thought it was worth since the 60's."  That's a long time.  Does this sound like the right history?  It might not repeat...does it rhyme?

HungrySeagull's picture

Gas was .28 in 71 and a Ford V8 two door car with AC cost somewhere around 3400 dollars, a 4 bedroom two bath house with basement was on the order of about 21,000 and wages were... quite something. 50 dollars then equalled about oh... 300 today.


Back to gasoline. We also had 70 mph speed limits too until Congress got rid of it. We had decent engines until the emissions hit. Parking towers downtown started to struggle with dedicated compact car parking when Datsun and others started to show up. We had a little Datsun 1200 I think it was. filled it up with 4 dollars worth of gas at ... .45 or so? I forget.


Mcdonalds for two adults and 3 kids were about 6 bucks max. 5 complete meals plus sundaes.


When the oil embargo hit us in the mid 70's we parked the gigantic 350 block v8 chevy impala with the 20 gallon tank or somthing and rode the Datsun past all the lines of people waiting to get gas. We had odd days and even days based on your tag number. Some gas stations ran out waiting on trucks to show up. Trucks had trouble getting in and out to load the gas stations.


Later on towards the 80's banks offered CD Deposits at rates about between 10 to 14% I think for a 5 year term and shortly later collapsed when people quit buying a BMW for every home. I bought a car with a 15 interest rate which made 7600 retail loan principal become something like 15,600 after 5 years. Within 5 years cars jumped from 7 past 12 then 17 and finally 26,000


My first job paid 3.35 minimum wage, for every 100 I made about 35 vanished into state, federal tax and social security. But everyone worked 40 hour weeks and went home, hardly no one worked nights except certain professions.

You handed a credit card to a cashier in the 70's They haul out a GIGANTIC BOOK and manually looked up your card number in something like 4 point type font. If your card number was not in the book, you were allowed to buy on the card (Or was it the other way around.)


Paper money had words like "United States Note" and some contained "Silver Note" and so on. Very nice words to have on a greenback. Sure wished I kept them... but they were like dozens of them all over and two dollar bills too. Or was it three? I cannot remember.


The 70's everyone partied at the dance floor at night on weekends. But the rest of the week only a few sat at the bar. And hardly no one ate food in the booths unless a funeral or local ball team was celebrating a win.

The 80's brought cable and the VCR. We watched the scud missiles attacking Israel in real time and seeing early Patriot air defense missiles rising up to meet them. Some hit, some well.. probably missed. And the ones that missed waited a few moments and a big splash of fire downtown covering a city block or two. At that time we were pretty sure that it would have gone nuclear or something.

That was our first taste of war by cable TV, little did we understand that a few years later we will be satellite TV in big screen watching small units in real time in battle.

In fact between both Iraqi wars there was a no-fly zone and the USAF treated that as a total war footing. We would scan news papers every morning to see if anyone got shot down last night. Fortunately not too many.

There was Bonsia. A nastly little war. I am still learning about it even today. What a vicious little butcher mess in a very small amount of space.

Cell Phones were very big with three foot antennas. Only the very rich used them. I am not sure what they cost back then but it made today's plans seem CHEAP I tell ya.

duo's picture

M3 is about 9x what it was in 1971, so is M2.  Pretty much everything other than TV's costs about 9X as much.

I remember the book with credit card numbers.  I also remember tube-testers in the lobby of K-mart (called Kresge's back then).  It was called a "5 and dime" because they actually sold stuff for 5 and 10 cents.

zhandax's picture

How about a little period music to go with that?  This is almost the version on the original 1979 album with a few extra verses added.  http://www.youtube.com/watch?v=wzq6CNNwtLk

It became one of my favorites after gas for my 400ci Grand Prix went from $40 to $150 a month.  Also, that $3600 Camaro I saw in the showroom in high school in 1974 had gone to $7300 by the time I graduated a couple of years later.  So much for WIN buttons (whip inflation now) {right}.

AssFire's picture

The 1972 $50k house we moved into was worth $250k by 1982. I never thought we would ever see such inflation again. I now think maybe I'll look back at those Carter years as the good ol' days.

Those who would riot first and live off the government have no concept of what is coming for them. One without skills and uneducated and totally dependent is an affront to nature's (and Darwin's) laws. Just bring on the collapse and stop breeding asset liquidators.


A lot of noteable people supported these controversial policies in the past, when the politically correct BS (and hopefully our government) is gone- the discussion will arise again. Something must be done to stop the 50% of people who contribute nothing from voting or we will be GreeceII. We can do this now, or we can descind into the what the Greeks have become: the United States of Idiocracy- either way, on a long enough timeline the survival rate for everyone drops to zero. I say increase the timeline and get rid of the zeros.



Anton LaVey's picture

Just reading that kind of post reminds me of Clemenceau's quip: "The United States went from barbary to decadence, without ever going through civilization".

As an example, you may think your cleaning lady, for instance, contributes nothing to the wealth of your country. Try living without her services for a couple of months for starters.


Anton LaVey's picture

And 19% of all Americans believe the Sun revolves around the Earth.

I would add some choice words for that type of blatant racism, but you probably would not understand half of them.

malek's picture

Let me give another case of blatant racism for you to stomach: Shepherds are taller than poodles.

AssFire's picture

Yes, your recollection is correct and we will certainly revisit it on a larger scale once the manipulation is removed. I would rather both bonds and the dollar crash rather than digging the hole deeper and further enslaving the taxpayers to the government and creating more dependents to the government. I see us just like Greece if the insanity continues... Goobermint.