An Interview with Bill Fleckenstein ÿÿÿ <Picture: billfleck.jpg (3987 bytes)>
TGF: How long have you been in the investment business?
Fleck: I started in this business in 1982. I was long. In 1995, I decided that when this would end, it would end very badly. I thought that I could make money being short, and that, ultimately, I would go back to the long side. I would have differentiated myself from everyone else on the long side, who, you know, drank the Kool-Aid. So that's what I set out to do. In 1995, I started this short-only fund, to short until things changed, not to short forever. For the first 3 « years or so, I was up about 100%, even though the market was up over 100%. It was very volatile on the way. I had huge losses over some periods.
TGF: But you've always been a tech stock investor?
Fleck: No. I'm just short tech stocks because that's where the excesses are. That's where the worst businesses, with the biggest valuations, the most GDP-sensitive businesses are. These things were having trouble before the economy slowed down. When we get to the recession, which is coming, it's going to be a debacle. Just a debacle. You couldn't pick a better group to be (short) in. That's why I'm there. That's why I talk about it all the time. It's where the single greatest excess is. It's a pure obsolescence business. And the morons who are in love them don't know anything about them.
TGF: So you've been doing this on your own since 1995?
Fleck: Right, I left the firm I was with. I left to go on my own to do this.
TGF: What triggered the move from bull to bear for you?
Fleck: I just didn't like what the long side had become. The investment management business had morphed into the investment marketing business. I just had no interest in that. I could see where it was going. I thought, "This is going to end in disaster." At least if I go short, I could make money. I had shorted stocks before, personally. I had been short Tokyo in 1988, 1989, 1990, so I had been short a bubble before. I thought at least I'd have a chance to do something with a future. Whereas the money management business would be a disaster. You've got, what, 8,000-some mutual funds, God knows how many hedge funds and money manager organizations? And probably 90% of these people haven't got a clue about running money. I'm no genius, but I've been doing it long enough to know, and I have enough respect for history, that I know that all the chart books and momentum investing is going to get you nowhere. There's just a lot of dumb money being run by dummies. I'm not saying I'm a genius, I'm just saying there are a lot of people out there who think they know what they're doing, who don't have the foggiest notion. That I know, for a fact.
TGF: And your clients are comfortable with your approach?
Fleck: The stock market is $13 trillion. To have $40-$50 million of money that people have dribbled out as a hedge or an insurance policy that might pay off-and one that's made money while the market's gone up-that's not stupid. I've got enough people (clients) who've done that (sold short). I'm fortunate that most of them understand what it is we're doing. And when we go through our periods-and we go through some really bad periods in this fund-they seem to be prepared. I try to tell people, don't put in too much money. Don't give the wrong amount. Pace yourself. I know what it's like. I try to give myself, as the general partner, and thus my limited partners, the best advantages I can. And I try to choreograph my openings around periods where I see an advantage. It's worked most of the time, sometimes it has not. But I'm just trying to do everything I can to get a little edge.
TGF: You've mentioned you see a recession coming? How bad do you think it will get?
Fleck: I think that we will have the worst recession since 1973-74. And it could be worse than that. Because of the excesses. We have not had a boom that collapsed the economy because of over-investment and (monetary) over-stimulus since the 1920s. That's what happened in Tokyo. Here, the Fed was allowed to be particularly over-stimulative in this cycle because you've had a combination of things happening. You've got supercomputers, in essence, sitting on everyone's desks, and what that means is that you've had enormous advances in productivity, at the same time you've had NAFTA and the collapse of communism. You've had all these events come together to create an unusual period where we didn't have inflation. The Fed, looking at inflation, didn't realize that they over-stimulated. And this over-stimulation caused a worldwide over-investment boom. It doesn't take many years of reckless, irresponsible monetary policy to cause a decade's worth of damage. In my opinion, Alan Greenspan, when the history books are written and we get a little perspective on this period, will go down as the single most irresponsible Fed chairman of all time. Now, I know that's a strong statement. But it was only in 1986, 1987, and 1988 when Tokyo got irresponsible with their monetary policy and look what it got them. If you go back and study the 1920s, there was only a two-to-three year period, 1924-1927, when it got reckless. And really, they only came out of that turmoil during World War II. People don't really understand economic and financial history these days. They don't realize that it doesn't take much irresponsibility to cause a real problem. Now, when you think the stock market is 130%-140% of GDP, it doesn't take much of a drop in the stock market to really impact the economy. So when the stock market goes, the recession that we're going to have will be that much worse. There are a lot of people who have over-borrowed. I'm assuming the next recession will be the worst that we've seen since the Depression. Whether it is or not, I don't know, but that's my working assumption at this point. Look, we never really paid the price from the 1980s. We started to have a recession induced by a collapse in bank credit, which Greenspan didn't understand at the time. He's now engaged in revisionist history. He says now that they understood it then, but you can read the Fed minutes from that period-it's been five years and they've been released (to the public)-and you can see that he didn't understand it. They've bent the yield curve down and given us this speculative boom. And as a result, I have a real fear that the next recession is going to be very, very ugly. I kind of hope I'm wrong, but I'm planning for it. And I think people are underestimating the dislocation that is going to occur as a result of the year 2000. Whether it turns out to be as bad as some think, I think there will be enough dislocation worrying about it, that that's going to upset the apple cart. So, I think it's an extraordinarily risky time to own stocks. I wouldn't own stocks. I wouldn't own stocks anywhere on the planet.
TGF: We noticed you've been talking a lot about silver.
Fleck: I happen to believe that silver represents value as a commodity, given what it sells for and its supply and demand. It's got a very good story. If we have a period where people don't have supreme confidence in the dollar or the stock market, they may want to own something that's a store of value, that's not made from dead trees. If that's the case, silver's going to go up the most. Silver is binary, in my opinion. It either does nothing for you, or it explodes when we have investment demand. I think Buffet sees it the way I do. That's not say I'm as smart as Warren Buffet. But he bought silver for a reason. And it's interesting. All the fools are tripping over themselves to buy Coke and Gillette and Disney and Berkshire at these prices, but nobody's bothered to buy any silver. I just think you get the apocalypse dislocation insurance aspect of owning silver for nothing (at these prices). You're buying it for less than the cost it is to mine it. I think it's a great hedge. It's the kind of thing-- if you weren't in my business as a short seller--you'd like to buy and have not do very well. Which would mean everything's OK. But if we have real trouble, which I think we will, gold and silver will do well, because they do well in environments where people don't have confidence. Right now people have supreme confidence. They believe that by owning stock certificates they'll earn 30% a year risk free.
TGF: Growth Forever.
Fleck: Yea, growth forever, like this idiot who wrote this article (pointing to a tackboard above his desk, where a recent Wall Street Journal article hangs prominently ). Along with this one, "Are Stocks Overvalued, Not a Chance". Anyway, back to silver, I just think it's got great risk reward. There are damn few things you can find these days that have a risk reward that looks decent if things get ugly.
TGF: How do you see the deflation argument?
Fleck: I believe, in a social democracy, all roads lead to inflation, ultimately. So, we start to have real trouble, like I think we will, and at some point they'll (the Fed) fire up the printing presses. Now, that doesn't mean you can't get some combination of inflation and deflation. We may have a period of deflationary symptoms, but out-in-out deflation is going to be real difficult because we can make the dollar go down awful fast. I think we're liable to a have a little of both, inflation-deflation. In the long run, the problem will be inflation. That's the odds on bet, even though, when the stock market collapses and drags everything down with it, we could have a period of deflation. But the response to that will be massive liquidity.
thegreaterfool.com |
