Crisis of confidence coming soon?

Some of the tactics and rosy scenarios emanating from Wall Street are reminiscent of the dot-com heyday. Plus, notes from the spring Grant's Conference.

By Bill_Fleckenstein Apr 20, 2012 2:04PM

It's early, but earnings season has already brought us two throwbacks to the late-1990s stock bubble.


First came the stories waxing rhapsodic about Google's (GOOG) wonderful 2-for-1 stock split. Lest we forgot, that was a tactic used to drive stocks wild when people were in full dot-com delirium.


This time, however, it didn't do much for Google shares, which gave back all of March's gains, and then some, before recovering a bit.


The other news was the prediction from Gene Munster, an Apple (AAPL) analyst at Piper Jaffray, that Apple would be the first trillion-dollar company, by 2014. What I found particularly humorous was that, while the article I read acknowledged that the last time this subject came up (back in 2000) the "dead fish" had predicted Cisco Systems (CSCO) would be the first company with a trillion-dollar market cap, that error wouldn't stop Apple from achieving the valuation set by Munster. (At the time, I wrote an article explaining how preposterous that notion was.)


(Column continues below video.)

Apple slider?


I would just like to go on the record as saying I think it is virtually impossible for Apple to reach a $1 trillion market cap by 2014. I don't think that the level of sales and margins required to support that valuation in a nonlunatic world can be achieved in the next few years.


People seem to forget that the law of large numbers is quite potent. It is simply much, much more difficult to grow and maintain earnings when a company is very large. If you don't believe me, just ask Warren Buffett. He points it out all the time (we may disagree with his political views, but the man can analyze businesses).


I have absolutely no position in Apple, but given the points I recently made about the company, it appears that the stock is trading just as it would if it were making a top. I am not interested in putting up money behind that statement, but we have certainly seen a lot of good ideas overdone to the upside in the past decade and a half, and it seems Apple might be among them. (Again, Apple zealots take note: I have no dog in this fight, I'm just making an observation.)


Lack of confidence is no game


Lastly, I want to report on my attendance at the spring Grant's Conference in New York and the stellar lineup of speakers who were there. I was surprised to hear so many references -- particularly by Stan Druckenmiller and Paul Singer -- to some sort of crisis of confidence that lies ahead. Both of them (and others) feel that the endgame for all the money-printing we have seen is that people at some point will lose confidence in the dollar or the bond market. It's roughly equivalent to what I have referred to as the "funding crisis."


Many people who have grown up knowing only Alan Greenspan or Ben Bernanke at the helm of the Federal Reserve cannot conceive of a market losing confidence in central bankers. But those of us who have been at this long enough (or are students of history, or both) have seen or read about it happening many times in the past, and this is where Druckenmiller and Singer believe we are headed.


It is not possible to know when that might occur, though Druckenmiller made an interesting case as to why it could be as early as 2013. As I have said, the sooner it happens, the less damage will have been done to the U.S. economy in the long run via misallocation of capital and too much debt.


Tried and true, but still trying


I was also interested to note that those two gentlemen, and others, feel that the best way to protect oneself from the predicted outcome, whenever it occurs, is to own gold.


Of course, as we have learned, that does not mean gold will go up every day. On the contrary, the nature of the gold market means having the courage of your convictions tested regularly, as we have since gold hit its high in September 2012.


It is pretty obvious that Europe is headed to another round of quantitative easing, as Spain is coming unglued. I believe weakness in the U.S. stock market and economy will push the Fed toward QE3 within the next couple of months.


So, despite the recent view that central bankers are all on hold, I expect that will change quickly. Another week of stock-market declines and all the Goldilocks believers who were feeling so confident a week or two ago will be begging Bernanke to print more money.


At the time of publication, Bill Fleckenstein owned gold and silver.

Apr 23, 2012 3:56PM
Crisis of confidence coming soon?

No, it's been here for 3 years. Too bad the liberal media has had their collective heads up their azz, or they probably would have noticed!
Apr 23, 2012 12:25PM
When did Bernanke STOP printing money? I missed that so please allow me to update my records.
Apr 23, 2012 4:01PM

Analize this Bill. Manufacturing is slowing down and the reporting on it is slipping through the

Apple, Wal-Mart, Gold, Market dropping analysis that goes on and on and on...No factory jobs, no middle class money. No middle class money no growth in the economy. 

This is in reply to havasu46, I would really appreciate if people stopped thinking from the rear lower part of their body and actually look into President Romneys backround and see that all his life he was a turnaround artist taking defunct companies and making them profitable. He did this for Bain Capital, the 2002 Salt Lake City Olympics and Massachusetts (turning a 3 billion dollar deficit into a 700 million dollar surplus). It continually seems that his uncanny ability to take something bad and turn it into something good is being met with enormous stupidity and ignorance from the Obama supporters. America, its time to wake up and smell the coffee. I can't even say that Obama is a "has been" because actually he is a "never was". Vote often and Republican.....
Apr 23, 2012 4:40PM
Rich Presidents?  Wasn't Kennedy  born with a silver spoon? Wasn't he a champion of lower tax rates?  

I know you feel Rich Presidents are bad for the country.... After all we seen the kind of damage Roosevelt and Kennedy did.   Rich families and 'golden spoons' in their mouths...

Used to be the Rich were looked up too as how to be...  Now the Democrats seem to want to blame the Rich.   When the real problem is their SOCIALIST/MARXIST policies.  

Of course you probably believe you can TAX, Borrow SPEND and Debase your way to prosperity, like Obama...
Apr 23, 2012 3:17PM


Apr 23, 2012 4:43PM
Birdy64....the democrats only know how to shut down business, not how to start one.  They claim they have created millions of jobs, but there are less people working today than the day Obama took office.  Perhaps they meant they created all those jobs overseas?

Feel free to HIRE all the employees you want!    This President is not competent to run a lemonade stand.  He is more clueless than Carter...
Apr 23, 2012 2:57PM
Alright investors, BAIL OUT NOW and save what you got you're gonna need it for the 2013 market crash!!
Apr 23, 2012 5:52PM
Blah.blah.blah. My candidate is better than your candidate.  My party cares about little people, not your party.  Oh baloney.  Do you really believe that these establishment figures care as much about you as you express your all-knowing opinions and defenses of their policies?  There are no loyalty points coming your way folks.  The politicos probably read these blogs and laugh at how the stupid people take up for them no matter what unconstitutional, self-serving acts are unleashed on this group or that group.  Your turn at reality begins when you quit trusting them, regardless of party name.
Apr 23, 2012 10:11PM

First of all I don't get my facts from Fox News, but it sounds like you take your direction from the democratic national committee.  I don't know what you have been watching but Obama does blame everything on Bush.  I never meant to imply that the democrates were totally responsible for the crisis I was only trying to say that the Dems were also involved.  If you think that spending money like we have all the money in the world is the way to solve problems then Obama must be the greatest president ever, but there is more to being agreat president than that it involves making tough decisions not just playing to your base.  I don't know were your getting your facts but the banks were forced to do alot more than just offer less stringent credit and down payment requirements for working and middles class.  You are right that Alen Greenspan deserves alot of the blame.  As far as the deficit is concerned Obama has added more in 3 years than Bush added in 8, but of course that is Bush's fault.  As far as the wars are concerned why hasn't Obama ended than like he said he would?  You say I must be on drugs because I think Bush was a great president, but can't I say the same thing about you and Obama.  I could kept going but I need to get up early for work.  One last thing, you say Obama dosen't blame Bush, but how many thing of any significance can you name that Obama has accepted resposability for?

Apr 23, 2012 6:08PM
Reality9999 compared to Obama, Bush was a great president.  All Obama has done is blame Bush for everything and increase government spending by over 25%, the highest level since WW2.  If you think the financial crisis was all on Bush you may want check the facts, the democrats were the ones that started the whole thing by forcing banks to loan to people with bad credit.
Apr 24, 2012 11:53AM
And like the ignorant masses of sheep we are, uneducated in great numbers, morally corrupt in larger numbers, blind followers of our demi-god politicians, we are lead to the slaughter.
Apr 24, 2012 9:28AM

Comparing President Obama to Jimmy Carter is a severe insult to Jimmy Carter.

Who would have thought we could get a more idiotic, disconnected, empty suit of a man than George Bush??  Well, we got one!   All the stupidity multiplied by ten.  And even worse, this guy is the absolute king at straight face lying, arrogance, abuse of power, opportunism, pandering, divisiveness and hypocricy. 

If he wins a second term, what make anybody think he'll THEN start taking responsibilty for anything that goes wrong? 

 "Pass this bill now!!!" yeah right you d-bag. Can't even get support from your own party on any of your proposals.  Oh yeah, lets have your surrogates play the race card over and over and over again every time you don't get your way. Keep sending your POS AG Holder to harrass folks that call you out.   

Apr 24, 2012 2:20AM
Gold could continue to go up as the dollar and euro go down, along with the economies--warped as they have been by various Republican and Democratic jumpstarting attempts.  A lot of our current problems boil down to two things: uncontrolled spending on wars (which the Republicans love because of the money-grubbing opportunities they present) and the greed and money-grubbing starting in the 1980's or earlier (did I mention the Vietnam war--about one $trillion back in the 1960's and 1970's, when a trillion meant real money--a worthless endeavor by any measure).  By the way, I was in the DOD intelligence biz back then, so I know something about it.  We could save a lot, fix our bridges and pay off a lot of debt, if we got the H. out of Iraq and Afghanistan--and cut back on too many overseas bases.  And, finally, gold could easily go down if we could face our problems squarely and get a little Republican common sense with less obstruction.
Apr 23, 2012 5:05PM
It's okay - Barry said he'd paid my mo'gage
Apr 23, 2012 12:20PM
Of course, as we have learned, that does not mean gold will go up every day. On the contrary, the nature of the gold market means having the courage of your convictions tested regularly, as we have since gold hit its high in September 2012.


Wow, Nice to see the prediction that gold will hit a high next September, or was this article supposed to sit on the spike until next winter?

Apr 24, 2012 2:28PM
reality9999  There's no way to pull 42 cents of every dollar from Federal spending overnight.  The economy would collapse overnight.  That 42 cent figure is the the most recent estimate I've seen of how much of Federal spending is borrowed.  I agree that past presidents in BOTH parties have been complicit in this debacle, but, and its a BIG but, Congress has been controlled by the Democrats for 44 out of the last 56 years.  Congress holds the purse strings and have been selling us down the river.  And when the Dems got complete control of Congress THEY DIDN'T EVEN SUBMIT A BUDGET!!  Then they try to CENTRALIZE control of health care?!  Our current President won't even listen to his OWN Deficit Commitee and adopt the Simpson-Bowles plan!!      Bush/Obama what's the difference?!  Greenspan/Bernanke what's the difference?  At least the newbies in the House are trying to honestly communicate and begin to address the pickle we're in. A junebug has more leadership skills than President Obama.  I'll vote for anyone else and take my chances.    
Apr 24, 2012 11:24AM
If it wasn't for the fact that this goofy President may have the opportunity to pick more Supreme Court justices, I'd say go ahead, give him and the useless, gutless Senate four more years.  It'd be awesome to see these self-serving, do-gooder, big central government hacks be the incumbents when the almighty Dollar finally crashes and burns. Maybe they'll try again to blame in on "speculators" or "Wall Street" but hopefully the people will see the truth that big(deficit spending) central government and big central banking have enriched/empowered the elites and left the rest of us with scraps and little liberty to boot. 
Apr 23, 2012 11:04PM
Smile More like crises of capability is coming up more than anything else.
Apr 23, 2012 7:37PM
Love reading comments on money articles.  Private sector guys trying to make sense out of national  politics and public policy using arguments learned on the trading floor.  Like listening to an accountant plan a NASA mission to Mars.  You guys crack me up.
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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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