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.


I wasn't sure before but now I'm convinced that the labor department is using "fuzzy math", they really need to review the formulas being used, they don't reflect the true number which is closer to 11.5%. I understand why they don't want people to know the actual figure, Obama could never get reelected. I hope the American people are smarter than they were in 2008, if not, you will see unemployment break 16%. When President Romney takes over I believe there will be more businesses hiring and the rate will go down precipitously just like when Reagan was President.

GOD BLESS AMERICA! Please, Please think before you vote!  

Apr 26, 2012 10:42AM
forwill, good post, I agree you can't reduce by 40% right away but that is why the deficit has to be reduced by a combination of cuts and increased revenue.  Democrats have not controlled congress since pre 1994 and the vast majority of deficits have been since then.  They had majority control first two years of Obama but Mcconnell in senate admitted repubs top priority was to defeat anything Obama wanted.  Obama has shown leadership getting the few things passed he could in this obstructionist enviornment.  Why should the dems submit a budget when it doesn't have a snowball's chance in &$H#  of going anywhere? 
Apr 24, 2012 7:33PM
Thank God for all the rock star economists posting all their knowledge right here for everyone to  see so we can start solving our macro economic problems right now, we should have this whole thing cleared up pretty quickly.....oh wait, you're all still stuck in the who's to blame part. Never mind.
To blame the democrats for starting the whole financial crisis because the Clinton administration "forced banks to loan to people with bad credit" is way oversimplified and misleading

That is exactly what happened banks loan people with bad credit (US Treasury T-bills) a lot of money $15 trilion dollars said person could not pay back the money hence the run on the US banks which spread world wide.


It's going to happen again soon. The Federal Reserve is going to get very tried of loaning fake money to Uncle Sam and shut the door on us borrowing money.


After all they want to loan everyone's money and if they keep giving the US treasury money and get nothing back in return as the US is now bankrupt.




Considering Buzz Bernake printed over $9 trillion to bail out US banks and $5 trillion to bail out EU banks and who knows how much to bail out the Japanese.


There is going to be a day of reckening and that day will be soon.

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 12:41PM
hey Bill!   1980"s called... want their hairstyle  back!!!!
Apr 24, 2012 12:09PM
So who exactly are you for forwill that doesn't do deficit spending??  You think Romney won't have deficit spending?  Paul Ryan's budget includes deficit spending for the next ten years and Romney endorses it!  Bush jr. inherited a 5.5 trillion dollar deficit and when he left office it was 11 trillion, he doubled the deficit!!  (Jmar are you reading this?  The nation debt is $15 trillion now so Bush added 5.5 trillion, Obama 4 trillion, not sure if you are ignorant or just choose to lie.)  During Ronald Reagan's 8 years he tripled the national debt!!  From 800 billion to just under 3 trillion.  Don't try to tell me Republicans don't spend.  The cut taxes and SPEND increasing the deficit much faster.  Romney is already saying he would increase defense spending meaning MORE DEFICITS! 
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 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 24, 2012 10:57AM
Thanks to Obama, we are in better shape than Europe.  No small feat in light of 35 years of corruption in America.   (Thanks to Republican chicanery.) 
Apr 24, 2012 10:04AM
I would have liked for you to suggest in which stock or what to find the best gold stocks? Or are you just refering to holding gold bars?
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 24, 2012 2:07AM
If you listen to the Republicans, everything that's wrong with the country is because of the Democrats.  However, there are lots of Republicans out there who love Social Security and Medicare--the retired middle-class ones.  We could easily fix both by slightly raising the starting age to 63 for early retirement, and to 67-68 for full retirement, giving a bigger bonus to those who wait until 70 or 72. 

Then, we stop Social Security entirely for those with AGI's over $250,000 or Net Worth over $5 Million (maybe $10 Million, since a Million is no longer worth that much).  We could also means test Medicare.  Why should those with lots of money get lower Medicare insurance?  Yes, they paid in, but they got a lot by being in a free enterprise system--a little payback is something mentioned in the Bible, if I remember correctly.  But then, I don't claim the religiosity most Republicans do.
Apr 24, 2012 2:05AM
As long as "we the people" do not take control of our financial destinies we will continue to take the scraps thrown at us by the Rothschild consortium that owns the Federal Reserve and rules over our economy.  First and foremost the Federal Reserve and big Ben work for the Rothschild consortium that takes care of interests like Israel, Europe, UK, and other areas.  The USA is down on the list of things to do for the Rothschild people.
Apr 23, 2012 11:04PM
Smile More like crises of capability is coming up more than anything else.
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 8:40PM


Re: jmar93's Reality9999,


To blame the democrats for starting the whole financial crisis because the Clinton administration "forced banks to loan to people with bad credit" is way oversimplified and misleading. First, it simply pushed for less-stringent credit and down payment requirements for working and middle-class families, which was a good thing for a while until the greedy and corrupt elements of banks, Wall Street, and mortgage brokers got involved. In fact, there was bipartisan support for many of the things alleged to have led to the crisis, even the Gramm-Leach act repealing parts of Glass-Steagall. Instead of believing all the simple-minded things fed to you by Fox News or the right-wing nuts on the radio, dig a little deeper into the facts. The things which eventually led to the crisis are complex, but the whole speculative frenzy in many respects was probably a child of deregulation and layered irresponsibility going back to the early 1980s. If you're looking for who to blame, it's a better bet the list should include the Federal Reserve and Alan Greenspan, home buyers who took advantage and bid up the prices of homes excessively, Congress, real estate agents, mortgage brokers, Wall Street firms, the Bush administration (which failed to provide needed government oversight by that point) and a collective delusion. And if you're looking to blame a political party, remember Republicans have been the biggest champions of deregulation for 30 years now. The U.S. economy is enormously complicated, don't oversimplify things with "it was either our team or their team" thinking. You say Bush was a great president? What drug have you been taking? Also, Obama doesn't blame Bush for everything, that's just what you and your cohorts like to think. You should stop blaming Obama for everything, when your Republicans block and obstruct everything he's tried to do to heal the economic mess he inherited, no doubt with the hope he'll be blamed.

Let's not forget the deficit, which got way out of control thanks to Bush starting his illegitimate Iraq war for the benefit of corporations, and giving tax cuts to millionaires and billionaires decreasing revenue while running up trillions, while the middle-class suffered and made less and less, preventing even more potential tax revenue. One thing's for sure, 30 years of BS "trickle down economics" in reality turned out to be "trickle up"- and the American people were soaked, including the ones who are still flimflammed.



Apr 23, 2012 8:13PM



- How's eveything here Ben?


- It's all fine Mr President! I received tons of paper sheet and thousands of gallons of ink.

I can print money forever!

Will I get my helicopter? I want to ride in an helicopter!


- Sorry Ben, but I can't. Budget cuts, you know. But I could lend you Marine One for a while...





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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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[BRIEFING.COM] The stock market is doing pretty much what it was expected to do today in front of the FOMC decision (i.e. nothing).  The major indices are little changed as traders wait anxiously for the Fed's latest directive and updated economic projections.

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