Bill Fleckenstein writes his Contrarian commentary on MSN Money. I've been following him since 1999 – he's been proven to be right about the macro economics, even if he's usually a bit early on the inflection points. I think he makes some good points about the hidden dangers to our economy that most market watchers are either ignorant of or choose to downplay:
"I continue to believe that worrying about the Fed being tough is exactly the wrong thing to worry about. This, after all, is the Fed that precipitated a stock bubble — and then a housing bubble to address what ensued. The Fed only knows how to do one thing — which is to print money and bail out whatever problem it previously created. Thus, if one wants to worry, one should worry about the consequences of Fed recklessness: The fact that our economy is entering a post-housing-bubble recession, given (a) how levered up the consumer is, and (b) the fact that our financial system is held together with baling wire, in the form of derivatives, credit-default swaps and other sorts of financial "dark matter." It is this beneath-the-surface reality that comprises the real threat.
Perhaps as a sign that folks are starting to care, the shares of mortgage-insurance underwriter MGIC Investment (MTG, news, msgs) sank 5% on July 18, despite its win at "beat the number." This is a bit of the linkage I've been looking for, in terms of potential rot from the housing sector spilling into the financial sector.
In other words, some folks are beginning to rethink the notion of loans against homes as impregnable assets. In my opinion, any company that has profited by aiding and abetting the housing ATM is in trouble — and at serious risk, if it has a leveraged balance sheet with its assets being loans to houses.
I make those comments based on what I can see has gone on, and I'm sure that lots of unusual business practices have gone on that we have no knowledge of. Just as we didn't find out about Enron, WorldCom, options-backdating, etc. until the tide went out, we have yet to discover what borderline, if not outright criminal, behavior occurred in the housing mania.
When the stock market begins to connect the dots and that recession looms, all hell is going to break loose. Exactly when that occurs, I do not know, but it's coming."
Of course, Bill's comment about the tide going out is an allusion to Warren Buffett's comment that you don't know who's swimming naked until the tide goes out.
Thanks for posting. I read Bill Fleckenstein too, and subscribe to his daily column. It’s pretty cool – you can e-mail him questions, and he always answers them, but will not give investment advice. Does anyone have a question I should ask?
Why does Fleck keep saying the Fed will pause? I doubt they will. Inflation risks are too high. They’ll keep raising. But why does he keep saying they are “done now”, and he’s been wrong for months.
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