As investors realize the market's deflation phantoms aren't real, they'll notice a potentially fearful rise in inflation. That will give the bond market jitters.

By Bill_Fleckenstein Jan 18, 2013 3:09PM

Inflation © Nick Koudis/Getty ImagesEarlier this week, outgoing Eurogroup President Jean-Claude Juncker attempted to jawbone the euro lower when he said that, "the euro foreign-exchange rate is dangerously high."


So we now live in a world where not only are central banks intent on producing inflation, but the G-7 industrialized countries also all want their currencies lower. Paradoxically, the conclusion of the bond market is to worry about deflation when the logical result is inflation.


I, for one, think that game has ended. But the bond market certainly has not begun to factor in success of the central banks in debasing their currencies, or making them decline against the value of goods and services, something that has occurred even as the world has yapped about deflation.


Think of it as extra-mild deflation

On that score, an article by Anjli Raval in Wednesday's Financial Times headlined, "Labour shortage holds back builder Lennar" was most instructive. Raval began: "Lennar (LEN) said labour shortages and higher construction material and land costs were challenges for the US homebuilder even as it reported a surge in fourth-quarter earnings."


As the world's central banks print money and buy each other's bonds with abandon, very few seem to realize the implications for the world's finances -- or their own.

By Bill_Fleckenstein Jan 11, 2013 3:01PM

International currencies © Artifacts Images/Getty Images/Getty ImagesOn Tuesday, Japan announced that it intends to buy European Stability Mechanism bonds using its foreign exchange reserves in order to help weaken the yen.


This is not new news that Japan will be buying this paper, as it has purchased European Financial Stability Facility issues in the past. But I thought the juxtaposition of this with how government finances and currencies around the world have devolved made a poignant statement.


Just think: The Japanese have told us they are going to print as much paper as it takes to generate more inflation and drive the yen lower (which is also the unstated aim of the rest of the G-7 central banks).


The worlds of money and politics echo with sound and fury but in the end show little progress toward the solutions we need. That does bode well for gold.

By Bill_Fleckenstein Jan 4, 2013 3:01PM
Gold bars © Photodisc/SuperStockA reader on my subscription site,, reminded me this week of some words I wrote almost exactly a year ago, which made their way into my first MSN Money column of 2012. Looking at them again, I was struck by the fact that I might just as easily have come up with them yesterday.

Here they are, with some recent editorial additions to illustrate my point:


"Precious metals bulls were extraordinarily frustrated late in 2011 -- and 2012 -- I'm sure, as gold and silver were sold regardless of the news. Certainly markets can be maddening (as well as unprofitable) at times, especially at the end of the year when forced selling (in some years, it is herd-driven forced buying) causes the markets to completely ignore favorable news, and sometimes that feeds on itself. Of course, when the trend in force is as powerful as the recent decline in gold was, I'm sure there were computerized trading programs jumping on the bandwagon as well, and betting on lower prices by getting short.


The Federal Reserve's new policy 'twist' proves that its old money-printing habits die hard.

By Bill_Fleckenstein Dec 17, 2012 11:25AM

Close-up of Dollar bill © Steve Allen/Brand X/Getty ImagesOur redoubtable Federal Reserve was front and center last week as it continued its wildly aggressive monetary policy ways. It is ironic that the Fed is far more rabid now when it comes to conjuring dollars out of thin air than it was when the financial system threatened to seize up in late 2008, but that is what central planning committees do. They eventually overreact when they don't get the response they want.


That is not to say that the Fed won't get even more forceful, but it is following a time-honored, though inadvertent, tradition. The net of Wednesday's statement is that, not only is the Fed replacing its Operation Twist stimulus program (search on Bing for details) with $45 billion of outright bond purchases, it plans to do so until the unemployment rate hits 6.5%.


As the stakes for our financial future ratchet higher, so do the rhetoric, political posturing and hypocrisy. And still the Federal Reserve and lax regulators escape blame.

By Bill_Fleckenstein Dec 7, 2012 3:01PM

Image: Dollar bills floating over U.S. Capitol © CorbisOK, everyone, buckle up. This is going to be a bumpy ride.


First off, I would like to turn to our eventual funding crisis. Yes, I have been talking about this for some time, and no, it hasn't started yet. But it will. One day the markets will take the printing press away from central bankers by spurning their bonds, and governments needing to get their debt funded will see rates rise dramatically.


Whether it will start here, in Japan or somewhere else I don't know, nor do I know when it will start. But I do know that the catalyst will most likely be the world losing its fear of a deflationary accident.


Hewlett-Packard and Apple provide 2 very different illustrations of why patience is such a critical piece of the investing puzzle.

By Bill_Fleckenstein Nov 30, 2012 3:02PM

Dollar sign on keyboard © CorbisAs many readers no doubt know by now, Hewlett-Packard (HPQ) recently reported a massive write-off on its acquisition of Autonomy. I bring that up as a way to talk about what has happened to a great many of the tech leaders that flew so high in the stock mania that ended in March of 2000.


A lot of the pretend stocks of the dot-com variety have, of course, evaporated, but plenty of "real" companies also have declined in the 12-plus years since the peak of that insanity, HP being just one example. (Its price is now back to where it was in 1995.)


What often happens to good companies that get really expensive is that when valuations start to decline (usually due to some fundamental deterioration), people are attracted to them because of their "value." We have seen a bit of that with Apple (AAPL) and will probably see more prospectively (more about Apple below). In any case, Hewlett-Packard, Dell (DELL), Intel (INTC) and Microsoft (MSFT) are all examples of that, but there are hundreds more. (Microsoft publishes MSN Money.)


When Ben Bernanke hands over command at the Federal Reserve, it likely won't be to someone who'll change policy and solve our problems. Only a revolt in the bond market is likely to force real change.

By Bill_Fleckenstein Nov 16, 2012 3:01PM

Microphone on a lectern with a line graph © Image Source/PhotolibraryNow that the election is past, I am looking for the market, the media, and (if we're lucky) even politicians to focus on different -- if not more important -- things.


More likely, however, is that the news will now become dominated by the political posturing, bickering, leaks, brokering of agreements, accusations and brinkmanship surrounding the upcoming automatic tax hikes and spending cuts otherwise -- and inaccurately -- known as the fiscal cliff.


The logrolling should certainly get interesting. But it is nearly impossible to see how the twists and turns in this process will work out, other than to say it will probably result in a last-minute kick of the proverbial can down the road, with most of the tax hikes sticking but few of the recommended spending cuts taking effect.


Seems the market was surprisingly surprised by Obama's win. With that uncertainty out of the way, the market's near-term course should become clearer.

By Bill_Fleckenstein Nov 9, 2012 2:57PM

U.S. President Barack Obama holds a news conference from the White House /Larry Downing/ReutersThough President Barack Obama had been reported leading in virtually all the polls for some time, it would seem that the stock market had not been handicapping him as the winner, given that the market gapped aggressively lower on Wednesday in the wake of his victory. In fact, it took less than two hours for the market to shed just under 3%.


For those folks who had correctly expected this election outcome, you might have been scratching your head at how the market managed to hold together leading up to an election that was likely to result in dividend and capital-gains tax rate hikes, in addition to the fiscal cliff.


Of course, we don't know for sure that we will go over the cliff, as the can may get kicked down the road. But certainly from an economic perspective, there is not much chance that the next couple of years are going to be very different from the last four, i.e., pretty subpar from a gross-domestic-product and job-generation standpoint.


Thus, it will be up to low interest rates to keep some sort of a bid in the equity market.


I know that the hypnotized never lie

Now that the election is over and the market faces the reality of discounting those outcomes, the near-term direction of the market may be clearer and lower.


My recent strategy has been to short S&P futures, which I have done a couple of times for some brief trades. (Given that we have so many crosscurrents, holding any speculative position for very long is difficult and potentially dangerous, and not an advisable strategy for amateur investors to employ. And for the record, for me precious metals are not a speculative position, as that is a sector I have been involved in -- and expect to be involved in -- for some time.)


As regular readers know, I expect at some point the bond market will revolt, and though it is hard to say when, I was somewhat intrigued to hear on Tuesday night that a decent chunk of respondents to exit polls thought rising prices were our No. 1 problem. This is decidedly not what one would expect in the midst of a supposed deflationary period.


I have noted many times that declining prices in certain asset classes (such as real estate, which has stabilized for various price points and locales) is not deflation, so there is no point in rehashing all of that. And in the meantime, now that we have gotten our election out of the way, we can turn our attention to what the new leadership in China looks like, and what sort of stimulus programs its new leaders might have up their sleeves.


And from our à la carte menu, Apple turnover surprise

Speaking of tricks up one's sleeve, I am probably going to shock a few folks, but I decided to buy some near-dated Apple (AAPL) calls early this week (even though, as I said in a recent column, I think Apple's stock price has most likely peaked) after talking to Fred Hickey and reading his newsletter last weekend. (As an aside, if you have not subscribed to The High-Tech Strategist, I cannot recommend it more highly.)


As anyone who has read Hickey's most recent report knows, it is very likely that Apple will have an extremely strong quarter, yet, meanwhile, the stock has been in the penalty box. Thus, this is a bit of a contrary trade, and again, it is not a recommended course for most individual investors. But it will give me a bit of exposure to Apple's upside if the market decides it wants to rally in the wake of the election. The reason I chose to buy the calls, which expire before this column will be posted, is that I can limit my risk to a few dollars while Apple itself can swing wildly.


While it is very important to have conviction in your investment strategies, it is sometimes even more important to be flexible in your thinking. This trade on my part is certainly an example of that, as well as being contrary, given the recent performance of Apple's stock price.


S&P does not support this message

I was curious to see how the 1,400 level would hold on the Standard & Poor's 500 Index ($INX) following the election, as that appeared to be a floor recently. But the first time the Spooz (S&P futures market) traded down to that level during Wednesday's session, it punched through it to 1,385 before bouncing. Meanwhile, the chart of the Nasdaq ($COMPX) looks even worse, as that index is now not only below its 200-day moving average, but gapped through it on Wednesday.


This sort of action is precisely the reason I was willing to squander only a few dollars on my Apple calls, which were basically a way to participate on the upside should the market have decided to rally in the wake of a victory for Mitt Romney. 


At the time of publication, Bill Fleckenstein did not own or control shares of any company mentioned in this column.



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This column is a synopsis of Bill Fleckenstein's daily column on his website,, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.



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