Bill Fleckenstein, President of Fleckenstein Capital, told King World News that he sees big problems for stocks and bonds down the road.
Fleckenstein said that easy monetary policy has led to a misallocation of capital, and that no one has seen what happens when central banks print as much as they have after the financial crisis.
“Bonds are a joke, yes, and stocks are a joke, and which one is going to crack first and which one is going to lead to more trouble, I can’t tell you, other than both are going to be big problems somewhere down the road,” he said. From Fleckenstein:
“There’s no chance that the outcome in the financial markets in America is a pleasant one because we’ve gotten here because of the printed money. And so either we have a boatload of inflation and at some point the bond market really gets wrecked and the Fed’s credibility is undermined and we do something about them….
“This can’t possibly end well. This has gone on for so long. It’s still not possible to say when it’s going to change and what’s going to be the catalyst. The important thing to understand is that this is a very fragile structure. The market is very crash-prone. There’s not going to be any liquidity on the downside because of what’s happened in the banks — the algorithms and all that other stuff.
“But none of that matters until it matters. So you just have to understand what the mosaic is and what the facts are, but you can’t try to act on them until it starts to matter if you are going to express a view that is going against the printing of the central banks.”
Fleckenstein also said Yellen might have to start QE4, if the stock market “cracks” as the Fed winds down its asset purchase program this year.
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