The bond market is an accident waiting to happen.
When the bond market finally does crack, it is going to be one epic nightmare that is going to make 2008 and 2009 seem like a picnic. It will be a different kind of a crisis; but it will be an enormous crisis. These people that are bullish about stocks and bonds and the bond market, they do not understand anything.
We will hit a moment in time where there will be a rapid acceleration of the perception that people are being cheated via inflation by these money-printing policies. Why Americans seem to think there is no inflation just because the CPI says so, when their checkbooks every day ought to tell them there is, I cannot explain that. But there will be a change in psychology, and there will be a massive stampede into gold here and everywhere else around the world, because it is the only way you can protect yourself against these policies.
Pity the wise money manager these days. Our juiced-up financial markets, force-fed liquidity by the Fed the other major world central banks, are pushing asset prices far beyond what the fundamentals merit.
If you see this reckless central planning behavior for what it is – a deluded attempt to avoid reality for as long as possible – your options are limited if you take your fiduciary duty to your clients seriously.
Bill Fleckenstein of Fleckenstein Capital has a difficult time seeing other assets to own besides the precious metals. There are confidence bubbles in stocks, bonds and the fiat currencies that will break – not may, but will – and when they do, he sees no safe harbor for investment capital save gold:
If you saw the stock bubble coming in the late 1990s, why did you see that? Because you could see what the Fed was doing and the response people were having and the misallocation of capital and all the problems that that was going to lead to. If you saw that coming, you could not buy stocks. Your only real choice was to do nothing or short stocks. Shorting stocks is tricky, but those were the responses.
Fast forward to 2008; if you saw an even worse and more problematic real estate bubble, again, you could buy stocks or you could short them. You could not buy real estate if it was difficult to short list it. What were the proper responses?
Well, in the interim of those two, you also could have the response to buy gold, because we knew what the central banks’ response was going to be.
Now here we are today. If you understood those problems, you cannot buy stocks, because they are only up because of money printing. You cannot really short them, because it is so hard to fight that money printing.
The financial world has never existed like it does today. Where the Bank of Japan and the Fed are printing the enormous amounts of money that they are, and so is the Swiss National Bank, then let us not forget, there are dollar pegs all over the planet.
Whether it is in Asia or South America. So there are lots of places where they are also stimulating, printing money. So we have never been here before. There is no chance they are going to get the genie back in the bottle.
Maybe you can short stocks now because they are about to crash; I do not know. You cannot really short the bond market yet. But you ought to be able to buy gold. These policies will continue until the bond market croaks. In the interim, you ought to be able to make money in gold.
Now the gold market has been under pressure for like 18 months, and we had a huge break off the top in September of 2011 when Bernanke did not do QE2 when they thought he would. Now we just had an immense crack after having had, for a year and a half, central banks go hog wild. I cannot believe that there is not going to be an enormous rally, prospectively, in the gold market, once it stabilizes and starts flying higher. It is going to go one hell of a lot higher, I think.
I just do not know whether we have a train wreck in the bond market first or somehow gold goes into orbit first. It is hard to play a step forward on this, but what we do know is that we have never seen this before. It is guaranteed to shred the purchasing value of current currencies over time, and what exactly it takes to change psychology, I really cannot predict. We will just have to see what it is.
He sees the recent takedown in gold as engineered and short-lived, a tactic perpetrated in the paper markets while it still can be. But he sees a day soon where the physical bullion market will reassert itself as the primary driver of the price of gold and silver, and the corrupt manipulation suppressing PM prices finally is no longer possible.
In the interim, don’t let the current battery in price shake you loose of your PM positions, as it’s designed to do.
Click the play button below to listen to Chris’ interview with Bill Fleckenstein (28m:26s):