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Eric King:  “Bill, in the aftermath of the Fed tapering, what are your thoughts?

Fleckenstein:  “I guess Ben Bernanke wanted to be able to say that he had commenced the winding down of QE before he left the Fed.  That is the only reason I can think of why they wanted to start today, especially given the rules they have gone by on previous decision, and given that they didn’t taper in September.....

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“Obviously the stock market has concluded that everything is on track for a fairy tale ending, but the bond market isn’t exactly cooperating.  So they are buying $75 billion a month, instead of $85 billion a month, it’s still an enormous amount of monetization.”

Eric King:  “Bernanke also said today that the tapering could be reversed and asset purchases could be increased if the economy rolls over.”

Fleckenstein:  “If the economy rolls over that’s exactly what they will do.  The only reason that anyone thinks QE has been a success is because they are looking at the stock market.  The monetization has managed to drive the stock market up mightily in the last 4 or 5 years.

This is how everyone is viewing the efficacy of quantitative easing.  If you graded QE on the economy or employment growth, you would say it was an abject failure.  But as they say, ‘The stock market writes the news.’  Obviously if the economic data is weaker in 2014, and then the Fed says, ‘Hey, we’re going to do more,’ given the present mood of the stock market it might go higher.

The stock market is in this mode where it believes and has total confidence in the Fed.  If that shifts, then it would be a lot of trouble when the economy slows down again and the Fed has to come back and do more.  It’s really a function of psychology, and right now people believe that everything is going to be great -- just like they thought back in 1999 and 2007.  But as I said, right now the overwhelming majority of market participants seem to think everything is going to be fine. 

If things slow down they might start saying, ‘Oh my God, this (QE) doesn’t work,’ and stocks could get hit.  This all goes back to what I’ve been saying for some time:  The bond market is going to have to take the printing press away from the Fed.  And right now the bond market isn’t behaving quite the way the Fed would like, and that’s a step in the right direction if you are voting for sanity. 

The bottom line is we are not going to get any sanity until the Fed is forced to stop with these policies, and as long as people have confidence in these policies, the Fed is going to keep pursuing them.”

UPDATE - Due to the Fed decision KWN will be releasing interviews all day today.

IMPORTANT - The blockbuster KWN audio interview with Michael Pento where he discusses the Fed’s decision, how this will impact major markets, and why this is setting up the gold market for a historic move 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 Rick Rule, Gerald Celente, Dr. Marc Faber, Bill Fleckenstein, Eric Sprott, Grant Williams, Egon von Greyerz, Dr. Paul Craig Roberts, William Kaye, Andrew Maguire, David Stockman and Art Cashin are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf -- to listen CLICK HERE.

Eric King

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