© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast,

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Bill Fleckenstein continues:

“We had about a 15 to 20 year period where people lived beyond their means and didn’t really bother to save or worry about the future.  You see the impact now at the cities, counties, and states, where they are going bankrupt or they are finally admitting they can’t meet their promises.

As a country, and on the national level, we’ve got this monstrous debt that we’ve rolled up, and we’re going to have to deal with that sometime in the near future....

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“So what happened is that long-term problems weren’t addressed, or made worse, and some of the ‘long-term’ is now here.  So it wasn’t just the bubbles that the Fed created, it was the illusion of prosperity that kept us from dealing with the longer-term issues.

Fast forward to the present, all of the focus is on the Fed and the other central banks about what they are going to do next from a ‘print more money’ standpoint.  Letting the Fed and these other central banks do what they think is best has been a terrible strategy.

Those of us who have criticized them for doing this all along are in the perverse situation now where we have to continue to root for them to pursue these bad policies because I feel it’s only taking this to the end of it, where finally the world’s bond markets start to revolt. 

It will get us away from this stupid process that Greenspan really ran into the ground, and get us back to some sort of a gold-based money standard.” 

For those looking for sanity in the markets, Fleckenstein added: “This is the way it always feels until financial gravity takes over again.  The equity bubble went on way longer than I would have thought possible.  Now you’ve got the Fed being able to pretend that they can print money (without repercussions).  It’s mind boggling that half a dozen countries have negative nominal short rates, forget how negative real rates are.

We can’t know when, but at some point the markets will be bigger than the Fed once again.  We saw what happened in 2008 and we saw it in 2001.  When the markets finally revolt, then they will be bigger than the Fed and all of the central banks.

My belief is we will have taken this money printing as far as it will go, and the pendulum will swing back in the other direction, and the world will worry about inflation rather than deflation.  I think that’s a big inflection point that’s lurking out there.

In the end, the markets are bigger than the central banks, even though on most days, weeks, months, and years, it doesn’t seem that way because the markets do what the central banks want.  But it isn’t always the case, especially when they are pursuing bad policies.  Eventually the markets do the right thing.”

Fleckenstein had this to say regarding gold: “There has been a protracted correction going on for almost a year now, and people give up.  They get worn out and these things happen.  I don’t see any alternative, given the policies we’ve just discussed, to owning gold. 

The mining shares have stopped acting horrible now, for a couple of months.  On the other hand they haven’t really gone very far because gold hasn’t done much.  I suspect that when gold decides to move higher again, I would imagine the mining stocks will do just fine.”

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

This was a tremendous interview with Fleckenstein.  He discussed what to expect from central planners going forward, how markets will react and how investors should position themselves.  The interview with Bill Fleckenstein is available now and you can listen to it by CLICKING HERE. 

The interviews with Keith Barron, MEP Nigel Farage, Peter Schiff, John Embry and James Turk are available now.  Also, be sure to listen to last week’s line-up of other KWN interviews which included Egon von Greyerz, Micheal Pento, Dr. Stephen Leeb, John Hathaway and Art Cashin ($612 billion UBS) by CLICKING HERE.

Eric King

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