Final countdown on markets' third bubble

As the devil-may-care bravado of Wall Street marches on, history warns that -- in the end -- there will be the devil to pay.

By Bill_Fleckenstein Sep 27, 2013 12:20PM

Blowing bubbles © GSO Images/Getty ImagesOn the heels of the much-anticipated Federal Open Market Committee meeting, I thought it might be worthwhile to take a step back and try to assess the big picture, as I believe we might be idling up to a rather large inflection point, i.e., the beginning of the end of the central bank print-fest-inspired levitation of financial markets.


Beginning of the end justifies the means


By that I mean that if the Fed has lost control of the bond market -- which is my belief, though we can't yet be certain -- interest rates will rise no matter what the Fed does, with very negative ramifications for the stock market and the economy.


Combined with the speculation we have seen -- as typified by Tesla Motors (TSLA), LinkedIn (LNKD), TripAdvisor (TRIP), Facebook (FB), Yelp (YELP), Zillow (Z) and other wild, kinky stocks of this era -- when equities do top out (if they haven't already), computers will get loose on the downside at some point and we will have a brutal crash (although that is getting ahead of ourselves).


This is the third bubble-like experience we have had in the past 20 years. The first was the equity bubble, and the clues to that ending were the separation between the crazy and sane stocks in late 1999 and early 2000, followed by the blow-off in March 2000. The end was somewhat recognizable at the time, but, given that the stock market was the epicenter, it was the market itself that had to provide the signs that the end was nigh.


Mr. Market, in the billiard room, with the candlestick


As for the real estate bubble, where the bust broke wide open in 2008, the early clues that the end was at hand came from the subprime market, which was where the marginal buyer operated. In early 2007, we saw the initial first-payment defaults, and that was the tipoff that the marginal buyer had been found and could not pay.


That was the end of the subprime market, which marked the beginning of the end of the real estate bubble. And yet, even though the real estate market was the economy during the middle of the last decade, it took from March 2007 (when the first-payment defaults began) until August to finally put a top into the stock market. Although it wasn't until 2008 when the real damage was done.


As for the post-2008 period, money printing on the part of the Fed and other central banks has powered the stock market higher and helped the economy to some degree (i.e. by driving the real estate market), but it has really been a result of ridiculously low interest rates (not just short-term rates, which the central banks control, but longer-term rates as well), which provided the impetus for all the levitation I've described.


First the panic button, then the reset button


If the bond market (with maturities of five years and out) is no longer willing to follow what is dictated by short-term rates and the central banks, then higher yields lie ahead. Since no one really expects that, higher rates will wreak havoc throughout the financial system and various economic structures.


At some point, the realization that the Fed no longer controls interest rates will cause a "reset" in the stock market, which will be at a level quite a bit lower than where it is today. I expect the Fed to fight this eventuality with even more money, but of course that won't work, though it will be beneficial for precious metals.


In short, in the next month or so, we will find out just what the bond market wants to do. But I expect the current rally to fail and that the key to when trouble starts will be when yields on 10-year government bonds climb back over 3.00%.


What we need in this country is to get the Federal Reserve out of the business of money printing and day-to-day jawboning and back to some sound standard. The discipline that would create would finally force Congress to make the painful adjustments to get our financial house in order. This is not going to be easy, and it won’t happen tomorrow, but I believe that is where we're headed.


All good things must come to an end sometime


This will be my last column for MSN Money. I’m in the process of integrating access to previously unavailable free content on my website,, in addition to the paid subscription, which gives you full access to my Daily Rap column, Ask Fleck, the complete archives of both, as well as videos, interviews, and other special features. To be notified when the free content is available, follow me on Twitter @FlecksThoughts, Facebook or email  and simply enter “MSN Money Reader” in the subject line, no further information is necessary.

Sep 27, 2013 4:27PM
I will miss Bill's column for all it's thoughtful analysis. 
Sep 27, 2013 7:54PM
It's going to be a pretty weak site without Mirhaydari & Fleckenstein..........

Thx for all the articles......

Sep 27, 2013 7:53PM
MSN trying to save a few dollars, and in the process loses readers.  I will miss your comments and wish you the best.
Sep 28, 2013 7:23AM

No one will miss Bill Fleckenstein's column more than me. I was terminated from a major bank in 2007 for holding a contrarian opinion on the bank's activities. I lost my job and relocated for another one. In the following year, that bank collapsed- becoming the largest failure... until then. Beginning late 2007, I found the Money blogs and then was asked to Moderate for Jim Jubak's Money Talk. While I respect Jim's columns, I found myself valuing Bill Fleckenstein's columns far more. IF we had used caution and the Contrarian perspective, opposed to the raw stupidity of masking sheer greed and corruption as an intelligent alternative to natural cycling... we might all be poorer today, but employed and rebuilding or new building a 21st Century economy that sustains us. As it is- all bubbles do is distort the potential for damage that leaves indelible marks. To say-- this is going to hurt, is putting it mildly.

To Bill Fleckenstein... I say- cheers, my friend! I honor your integrity, perspective and patience, even as morons rode you because you didn't support the Kool Aid they so deeply are addicted to.

What's ahead... The main issue now is the "gap". There is an undeniable gap between those with a dog in the fight and those too stupid to notice their dog is a stuffed animal. The latter would be any investor whose wealth cannot singularly alter the opinion or vote of the powerful. My guess is-- you are a minion if your wealth tally falls shy of- billions. ALL minions burn in the collapse. Some of us have resigned to the crash potential already and are positioned closer to the floor as to be able to live past it. What is that configuration? Simply-- if your assets are vertical, you will fall hard from an overwhelming corruption in all bandwagons (stocks, bonds, metals, real estate, etc.). If your wealth comes from income streams not associated with the financial sector but also not reliant on physical structures and you used your cash to build-up functional inventory to last the duration... you will see trauma and drama but eat well and often. So much has to correct, even more needs reprogramming reform and reconstruction. Some say we grew to idolize the golden calf again, I'd say it's more that we forgot how to read the basic commandments and to grasp their meaning-- live simpler with less reliance on falseness and you don't have to buy stuff to make yourself try to be happy.


To Bill's reader base... if you grasped The Contrarian in 2007... you owned gold, then you sold gold and bought outside the mainstream and bandwagons. You likely have enough cash still sitting in a non-money market account or two or six that is at least insured by the FDIC or NCUA. You live less BIG now and toil at grassroots enterprises. You aren't a Prepper but you know what they bought and what will run out or spoil. You invested in the things that matter to people working hard to make recovery after the billionaires are toasted. Bill never said... follow me. He just turned a flashlight on inevitability and described the path. All the choices have always been ours to make, based on our own perceptions of Risk and Reality. To each of us I say... good luck. You are what you are made of.

Sep 27, 2013 8:35PM

Sorry to hear you're leaving Bill.  Don't you think it ironic that they are letting you go just when everything you've been warning about is coming true? 


Guess the MSN ownership has decided they are going to need to hire more cheerleaders so they can cover their shorts while they tell us sheep to buy, buy, buy!

Sep 28, 2013 12:44AM

It's probably not that Mr. Feinstein's views are not accurate, or that they are too controversial, but shutting down our input is the problem with this column.  Most of the comments need to be published somewhere, and that's a problem for for current policymakers.  I enjoy voting for who's comments come closest to the truth, even though my side, working people, are usually outvoted by financial people so to speak.  This dialogue needs to continue, so let's let the MSN management know that this column is valuable and has a function.  Sharing the dialogue is an important part of Democracy, and is what's missing from congressional politics today.  Money drives news outlets as well as lawmaking..  

Sep 27, 2013 5:59PM
Bye Bill,
I actually had to claw through MSN Money to find your article today. You will be greatly missed. Say Hi to the Lord of Dark Matter for me.

Sep 27, 2013 10:18PM
Looks like the government got to msn too. no more free speach.
Sep 27, 2013 7:30PM

It's been a pleasure reading your columns.


Sep 27, 2013 10:26PM
No way. You're leaving MSN? (Read: Forced out) I guess they got tired of the voice of reason reminding them the market is not floating on angels wings because President Obama says so. This probably is best described as "sticking your head in the sand". The world doesn't want to hear that our fiat currency system is broken. They don't want to hear that the Federal Reserves Quantative Easing is actually the very thing that's breaking the system. We (common citizen/peon) are left high and dry while the elite praise their various leaders (Be they R or D), rich enough that even when the house of cards will fall they'll be living like middle class and the middle class royals. The rest of the middle class will shift down to poverty levels, I fear, and those in poverty will be told everything's ok. It's a cruel world, madness will reign. It's been a joy to read your column Bill Fleckenstein. Best of luck and I'll check out your forwarding address when I can.
Sep 27, 2013 7:37PM
OH NO!  First Anthony and now Fleckenstein--what's the world coming to?  Not that was good for much more than left-wing, statist propaganda anyway, but I'll miss these two columns...
Sep 27, 2013 8:50PM
Sep 28, 2013 1:35AM
The fed can't quit printing money without drastically cutting spending. The deficit is too large and congress is unwilling to stop spending. Tax revenues are woofully inadequate to pay for the expenditures that are being given away by the politicians. The politicians have hit up the "so called" rich already. If they continue to pop the rich then eventually that will drive them from this country and the ones left won't be rich since their money will be in the hands of the socialist poor. When that happens there won't be money here to spur new development since the rich will have moved on to another country that benefits them better and the poor are poor because they haven't come up with anything to make them money. Anyway the politicians won't tax the poor since they don't have any wealth to get. So the Middle man is going to get a tax increase. If the the socialist subsidies are backed off the politicians know they would be entering an "anarchy in the streets" situation. Therefore the only thing they have left in their bag of tricks is to kick the can down the road as far as they can. Print the Money and HOPE something comes along that will save their bacon before the bubble busts.  I don't see anything on the near horizon and when the bubble bursts all the poor socialists will have a lot of middle class friends.  Misery loves company and this country will be set back 100 yrs. Just my 2 cents.
Sep 27, 2013 7:27PM
Here, let me get this for you, Bill.


Seriously, MSN has decided to discontinue original content ??

What will all us pensioners and lonely hearts do?

Sep 28, 2013 7:52AM
Yes no more original content, as that is potentially bad. Only carefully screened thought may now appear on this web site. All articles must now disregard any indication of negative thought regarding the ever present hope and change of the religion of progress. 
Sep 27, 2013 7:39PM
You gotta be kidding me---- you're asking Congress to make "painful" adjustments?  You're asking that money be put on some sort of "standard"?  ROFLMAO. 
Sep 28, 2013 12:15AM

Thanks for all of your knowledgeable information. I agree that we are in for a rude awakening as the markets, worldwide and at home cannot continue to survive the glories we have known to enjoy in past decades. The debt has grown to enormous destruction, which I believe came directly from our careless government spending ,not to disrecard the over spending and greed of the American people. It is now our own circle of destruction and realizing reality in full force. We are broke and over spent. It is a time for a reality check. Time to go back in history and see the destruction our own greed has caused. Time to come off the pedestal, get our hands dirty,  go to work regardless of wealth or poorness, and move forward as a great nation inorder to keep our pride and dignanty around the world. Can we do it?


Sep 28, 2013 5:17PM
To much negative news gets you replaced in this regime. Will miss both the guys.
Sep 27, 2013 9:30PM
is this the end of free speech in msn too?if Obama wants to stop free speech here too is because he doesn't want people to know what we say here .He is scared of us
Sep 27, 2013 7:41PM
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Image: Bill Fleckenstein, MSN money

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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  • Precious metals fell in electronic trade yesterday following the FOMC statement which conveyed no changes to the Fed's current policy course. As expected, the FOMC reduced the monthly pace of tis asset purchases by $10 bln to $15 bln and maintained the "considerable time" language in its forward guidance. 
  • Dec gold continued to trade lower and fell as low as $1216.30 per ounce in overnight trade, its lowest level since January. It managed to inch slightly ... More


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