Talking Numbers

Fleckenstein: Why the Fed is the problem

Talking Numbers

Bill Fleckenstein of Fleckenstein Capital says the Fed can't solve problems because it IS the problem.

Bill Fleckenstein can be excused for running a victory lap. After all, he correctly predicted the Federal Reserve Bank would not taper its $85 billion per month bond-buying program.

The founder of Fleckenstein Capital was on Talking Numbers over a month ago to discuss why he thought the Fed had lost control of the bond market. At the time, Fleckenstein said:

“I believe the Fed has lost control of the bond market but we won’t know that for certain until the Fed is unable to taper – or tapers a little and has to untaper – and the bond market doesn’t rally to a new high. So, if the Fed came out tomorrow and said, ‘Just kidding. We’re never tapering’, and bonds rally but they fail at 2.50% or 2.40% (speaking about the 10-Year [US Treasury bond yield]), and then started to go back down, then you’d know that for a variety of reasons the bond bull market had ended a year ago or something and we’re in a bond bear market (these things tend to last a couple of decades), it would be a very big deal. We can debate the reasons for that but we’re really not going to know for sure until the Fed kind of backs away from some of this tapering, which I think ultimately they will back away from it.

(Read: Bulls gone wild: Money flows hit a new record)

To put recent months in perspective, the yield on the US Treasury 10-Year note was just 1.6% this past spring. Though now less than its recent highs of 3%, it’s still nearly 100 basis points (1%) higher. That’s in large part due to Fed policymakers hinting that they were going to taper this month, something they ultimately did not due.

Now Fleckenstein is back to say that not only will the Fed not taper any time this year, but it also can’t control the bond market even if it tried. In an interview with Talking Numbers, Fleckenstein explains why he believes the Fed is the problem.

(Read: Don't be so sure Janet Yellen will be the next Fed chair)

To see Fleckenstein’s take on what’s next for interest rates and the bond markets, watch the video above.

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