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Eric King:  “Bill, as you know, recently KWN interviewed Jim Grant and he was talking about how ‘the world will witness extreme monetary disorder.’

Fleckenstein:  “If Jim (Grant) says it’s extreme monetary disorder, you can be sure of one thing, it is.  I think there is probably not a person on the planet who understands financial markets, who also understands the history of financial markets and events that have taken place in the past as well as Jim does.

The Fed is trapped.  The Fed has been trapped.  4 years ago they talked about ‘exit strategies.’  This year they weren’t even talking about an exit strategy, i.e. selling any paper that they bought....

Continue reading the Bill Fleckenstein interview below...


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“They talked about a plan to reduce the amount of purchases, the immense $85 billion a month, to maybe something slightly less immense -- like $75 billion a month.

Guess what?  They couldn’t even do that.  However, at the moment the masses don’t seem to think it is a problem that the Fed can’t even taper a little bit.  There are some other headwinds as well, not the least of which are the ramifications of Obamacare on job creation.  So the Fed is most likely not going to be able to get the economic results it wants, and it will continue to print money.  At some point this will be a problem.

It’s only going to be a problem for the equity market when the bond market finally misbehaves.  That is why the stocks have levitated for the last 5 years -- the Fed has printed money.  It’s been impossible to short stocks, because it’s impossible to win on the short side when so much liquidity is being created.  It just doesn’t work.

And, as Jim pointed out, when there is ‘extreme monetary disorder,’ what he means is there is money printing everywhere, and there is no real anchor in the financial sense.  Thus, until the bond market proves to people that it is declining, not because of the fear of tapering, but because of the consequences of money printing, which I believe is what’s going on, then you might have ramifications that matter to stocks as well.

Thus, when this current charade in Washington ends, and they kick the can down the road, there will probably be a rally in stocks and bonds.  What will be interesting is to see where they (stocks) fail, and most importantly where the bond market might fail, in terms of where we are in the process of the Fed losing the bond market.

If the bond market starts to price in inflation, and the long-end, say 5-Years and out, doesn’t cooperate with where the Fed wants short rates, now you are going to see the yield curve get even steeper.  And you are going to start to have problems in derivative structures, in mortgage portfolios and things like that.

I believe that banks are loaded up to their eyeballs with all kinds of fixed income.  That will create lots of problems.  But more importantly, when the psychology of the financial markets is that the Fed no longer controls the longer-end because they have been too easy, then you take being easy off the table and you create a huge problem for the stock market.  The stock market will be dramatically re-priced lower when that starts to occur.  That is going to be the next big opportunity on the short side. 

Quite frankly I’m contemplating starting a short fund again to capitalize on that.  I closed my short fund down in early 2009 because I knew the Fed would print money and it would be impossible to be short.  I never dreamed they would print this much, or that stocks would go this high, or we would have companies doubling on IPO day, but here we are.

Now with the bond market doing what it’s doing, it’s time to start thinking about how you would implement a strategy to capitalize on the next collapse in equities that will be a consequence of the Fed having lost control of the bond market.”  

Fleckenstein added this regarding gold and inflation:  “At some point there will be big move to the upside (in gold), and we will play catch-up for some of the monetary crimes that have been committed in the last couple of years ... My belief is that we saw the lows and that gold is going to work its way higher from here, and at some point it will accelerate.

... It’s just mind boggling to me that people in America are so comfortable with the inflation that we have, and they act as though it’s deflation.  It’s rather stunning to me, the particular strategy now amongst people when they raise prices is they shrink the size of what they give you and they don’t call it a price hike.” 

IMPORTANT - The information above is only a small portion of what Fledkenstein had to say in his extraordinary audio interview.  The KWN audio interview with Bill Fleckenstein discussing the coming collapse in stocks, gold, the end game and more is available now and you can listen to it by CLICKING HERE. 

© 2013 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.

The audio interviews with Bill Fleckenstein, David Stockman, Robin Griffiths, Jim Grant, Gerald Celente, William Kaye, Dr. Paul Craig Roberts, Chris Powell, Michael Pento, Eric Sprott, Andrew Maguire and Grant Williams are available now. Also, other recent KWN interviews include Marc Faber and Felix Zulauf to listen CLICKING HERE.

Eric King

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