Dear Rob 'n Plunder,
It's amazing to me that many do not believe that stocks are being held up by liquidity.
It seems that earnings reports are increasingly negative, e.g., CAT, INTC to name a few which come immediately to mind. Thus, the stock markets should be going down, rather than up.
Unemployment is not fixed by a long shot. We have the lowest labor participation rate in decades, but the unemployment figures are becoming better - though very slowly. That is, if you believe the BLS's figures.
Interest rates are the lowest in history, but corporations aren't going on a capex spree, which you would expect under normal circumstances. Instead, they are taking free cash and buying their own stock.
Interest rates are going to be very low for a long time - negative real rates will prevail. And so will QE. As Jay says, it's la meme chose as what happened in France in the 18th Century. It's even getting to the point where ordinary folks are hoarding specie.
Oh, yes, Fleck is right, there is a bond bubble, and its bursting will be the mother of all burst bubbles.
I suppose the lesson is a simple one: never fix a burst bubble with another bubble.
It might do well to emphasize on the points Fleck made:
But what do you see in the bond market in terms of risk structure?
Bill Fleckenstein: I see the same thing any sane person sees. The bond market is an accident waiting to happen. The only thing you know about the bond market is eventually they are going to give you your principal back. What it will actually purchase vs. what it purchases today we cannot say. So the bond market is just a vehicle by which you can get your money back over time at some debased amount, and in the interim they will pay you next to nothing, not even equal to the inflation rate. When that changes, I cannot say. If the world is worried about inflation, which it ought to because of what is going on, I think the bond market is going to start crack up. People would start to demand more in terms of yield and they would slowly be starting to take the printing press away from the central banks, which is what needs to happen in the long run. But until inflation psychology changes, I do not know what is going to cause the bond market to be derailed given how much is being purchased by the Fed and the financial system on the backs of the Fed and guys playing the carry trade. 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.
Chris Martenson: Well, I guess they understand the central bank put and they are counting on more money-printing creating more of the same. You would be saying that nothing like this can continue forever, because it just does not make sense.
Bill Fleckenstein: But that is not an investable thought, either. Saying it cannot go on forever does not mean that you cannot short stocks or bonds in the back. 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.
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