Related topics: gold, economy, Federal Reserve, China, Bill Fleckenstein
Speculative fervor has continued relatively unabated so far this year, such that four of my six previous 2011 columns for this site have dealt with that topic either directly or indirectly. And I'm now making it five out of seven.
The message seems to be getting through, to some extent. Even the "Heard on the Street" column in The Wall Street Journal managed to touch on it, although the writer of the Feb. 15 column seems to think that reckless speculation is kind of cute, rather than dangerous.
In the column, "For Bubble 2.0, Try Security Analysis 1.0" (subscription required), the author basically tells people to do their homework. Of course, one must remember that, back in the tech-stock bubble, the Journal got sucked in enough to deem it appropriate to capitalize the words "New Economy," as it was known among those who didn't understand what was really going on (i.e., mass delusion and speculation).
Bill Fleckenstein
I don't think that we can get to a full-blown stock bubble again -- I certainly hope that we can't -- but if the Journal has any indications that that's the case, it should be yelling at the top of its lungs that we need to prevent such a rerun.
Maybe the damage is not done after all
As I noted throughout the equity and real-estate manias, bubbles cannot be cured, they can only be prevented. Obviously, this is a lesson Federal Reserve Chairman Ben Bernanke has refused to learn, as he still thinks the Great Depression was caused by the Fed not easing enough in the 1930s, rather than by the Fed goosing the money supply in the late '20s.
Although I think former Fed chief Alan Greenspan was, from a financial perspective, evil incarnate, it is quite likely that Bernanke will do even more damage with all of his quantitative easing. The train wreck is only going to get bigger the higher stock prices race before sanity ultimately breaks out somewhere down the line.
Madness retakes control
I know I'm repeating myself (again), but I continue to be amazed by how quickly the madness has returned, whether you want to look at the fact that there are 50 leveraged buyout IPOs waiting in the wings to come public, or the fact that The New York Times recently prompted an epidemic of déjà vu with an article headlined "JPMorgan Aims Fund at Investing in Internet." (The Wall Street Journal called this a "new media" fund.) The examples of wild speculative behavior are everywhere one looks.
On the one hand, it is rather hard to reconcile when one looks at the country's inability to create jobs and its massive budget deficits. On the other, when the currency is worthless and the Fed prints money like it has, literally anything is possible. Ergo, speculation is now running rampant. This will end very badly, as all such episodes do. We just don't know when.
Part of the reason I keep harping on this topic is because the consequences are so dire. When stocks are driven to high valuations through "artificial" means, such as money-printing, those valuations are inherently riskier.
They are not built up because of organic growth of the economy, or because companies have made smart decisions, grown market share, cut costs, or increased productivity (Greenspan's favorite magic wand). They go up because all the freshly printed money needs a place to go and something to do. That means that when adversity strikes, and it will, stocks that have been kited higher on speculation are not as resilient as those that rise in a more sober-minded environment.
It's a small world, after all
Of course (as I noted), the Fed is not the only central bank that has been printing money, and the U.S. is not the only country experiencing the effects of such monetary policies. The United Kingdom and China reported their inflation numbers a couple of weeks ago, and China's were deemed to be a relief, but now it is changing the calculations. (I don't know anyone who believes China's data is all that accurate in the first place.)
As for the U.K., inflation was, of course, higher than expected, which is going to be the case virtually everywhere. The only relevant question is whether the government entity that reports the statistics in any given country comes close to being accurate. I suspect most don't.
While here in the U.S., most people have not realized the implications of inflation and currency debasement, that is not the case everywhere. I doubt it has any specific impact on any given day, but there has been an ongoing (since April) development that has boosted demand for gold, the universal protection against inflation.
I am referring to the launch of the Gold Accumulation Plan set up by the Industrial & Commercial Bank of China for Chinese retail depositors. The ICBC has 220 million account holders, 1 million of which (according to recent stories) already have GAP accounts.
Of course, there are other commercial banks as well, so in the end this type of account could be a big deal for precious metals, as it lets the "little guy" basically put himself on the gold standard.
When we see something similar rolled out for average retail depositors in U.S. banks, and they begin participating in earnest, we will know we are in the late innings of a gold bull market. Thus far, however, the attempts to cast aspersions on gold by those who hate it are almost as comical as they are uninformed.
At the time of publication, Bill Fleckenstein owned gold.
This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.
They will just have to learn the hard way! A fool and his money are soon parted! 
