My guest on Hedge Fund Radio this week is the legendary hedge fund manager Bill Fleckenstein, president of Fleckenstein Capital, based in Seattle, Washington.
Bill graduated from the University of Washington with a major in Mathematics, and joined the prestigious Wall Street firm Kidder Peabody in 1979. In 1982 he launched his own firm, following in the footsteps of the great hedge fund pioneers like George Soros, Julian Robertson, and Michael Steinhart.
He became a highly controversial figure during the nineties by warning of the dangers of the dotcom bubble. Bill stuck to his convictions and cashed in big time in the collapse that followed, riding some of his short positions down to zero.
Fleck, as he is known to his friends, was a vociferous critic of the Fed’s easy money policies during the 2000’s. He published a bestselling book, Greenspan’s Bubble: The Age of Ignorance at the Federal Reserve in January of 2008.
Fleck ran a short only hedge fund which he closed within days of the March 2009 bottom in the stock market, and returned the capital to his ecstatic investors. Since then he has been predominantly long investments that are beneficiaries of the relentless running of the printing presses in Washington, such as gold and the Canadian dollar. He still keeps in his office a six foot high stuffed black bear, wearing a blue “Dow 10,000” baseball hat, given him by a client. Note to readers: Bill doesn’t play in the ETF space, but I have included the relevant stock symbols for the convenience of individual investors.
Bill is sitting a major position in gold (NYSEARCA:GLD) these days, both in the physical and through the major miners, Newmont Mining (NYSE:NEM), Agnico Eagle (NYSE:AEM), and Goldcorp (NYSE:GG). Despite a fourfold return over the last decade, the barbarous relic is still hated by many professional money managers, which means it still has much further to rise. Falling confidence in “colored paper” (dollars) will just add fuel to the flames. Fleck is matching investments in the yellow metal with serious positions in silver and its miners. His target is nothing more specific than “UP”.
As much as Bill despises Treasury bonds (NYSEARCA:TBT), (NYSEARCA:TMV) at these nosebleed levels, he isn’t going short yet. He thinks we need to see a dollar crash first, and a recognition that we are in a stagflationary environment. Don’t waste time trying to call the top, because once the spike in interest rates starts, it will be “a big, big bear market,” that could go on for decades. The same currency/bond market tandem collapse logic may also apply to the yen and the JGB market. Rising commodity prices, like in copper (NASDAQ:CU), are an indication that some real inflation is on the way.
Stocks generally are headed for a big multiple compression, but until then, are stuck in a wide trading range. One of his few long picks is Microsoft (NASDAQ:MSFT) which has recovered from its disastrous Vista operating system launch, and is now hitting on all cylinders with a series of successful new product launches. MSFT is selling for only ten times earnings. Bill also likes Verizon (NYSE:VZ), which has been running on the prospect of a big network deal for Apple’s (NASDAQ:AAPL) Iphone. Fleck hates banks because they are still depending on a bogus accounting system, but won’t short them because the government keeps rescuing them with arbitrary safety nets.
Regarding China, Bill is not in the China bubble camp, and likes emerging markets generally, but isn’t a specific investor. The Western world ruined its banking systems during the bubble, while emerging markets didn’t. The consequence is that they are booming and we aren’t.
On the currency front, Fleckenstein likes the Canadian dollar (NYSEARCA:FXC), and admires the Singapore dollar and the Norwegian kroner from afar. He also has some cash in the Chinese Yuan (NYSEARCA:CYB) because he thinks it has to appreciate at some point, but doesn’t know how long it will take to pay off.
To listen to my interview in full with Bill Fleckenstein on Hedge Fund Radio, please click here. To buy Fleck’s excellent book on the insanity of the Fed’s easy money policies and their dire consequences, please click here.