Market Bubbles, Fed Dilemmas, & Thoughts on GOLD (Uncut) 02-08-2025

Market Bubbles, Fed Dilemmas, & Thoughts on GOLD: with Bill Fleckenstein (Little By Little)

By definition, when you own gold, you don’t trust something, either the central bank, your currency, you’re worried about your safety. So if you have a level of mistrust or low level of confidence, then you’re not going to buy that asset and leave it in a place where you got to trust the authorities, when they’ve kind of demonstrated that they’re willing to bend the laws. Anyone who’s got an ounce of brains can see it.

But if you also have made the step to buy gold or silver, you’re not liable to leave it in one of those places. So I think that’s part of what’s caused the movement. And it’s also exposed the fact that so much gold that used to sit in London for transactions now might not be there.

This is Little by Little with Andy Shekman. All right, everybody, welcome back to another episode of Little by Little. I am so honored to have Bill Fleckenstein with me today, the president of Fleckenstein Capital.

Bill, I’ve been following you for so long. I know you met my parents way back when. And that’s when I started following you.

I remember you on CNBC all the time and analysts on all the major business channels. And I’ve been following your writing and your YouTubes. And it’s just a real honor to have you here.

So thanks for jumping in, brother. How are you doing? I’m doing great. It’s nice to be with you.

Thank you very much. Thank you very much. I’m looking forward to the conversation.

I’ll jump in. Let’s start with the markets. Over the last few decades, we’ve seen lots of market bubbles, the tech bubble in 2000, the housing bubble in 08, which I think you were warning people about prior to it happening, if memory serves me right.

And now, in my mind, arguably a debt and asset bubble. You can correct me if I’m wrong. But with that all being said, what stage of the cycle do you think we’re in today? And in your mind, Bill, is there an endgame to all of this? Well, I was bearish before the stock bubble burst, too soon, I might add, and before the real estate bubble burst.

And I used to go on CNBC to kind of warn people. I used to think doing that might matter. It turns out that didn’t.

I even wrote a book about the incompetence of the Federal Reserve, thinking naively that if people understood how poor these guys were at their job, that they would not give them so much credibility. But that was another naive assumption on my part. But nonetheless, of course, what I thought was crazy in 2000, and particularly in 04, 05, 06, and 07, turned out to be kid stuff because the answer on the part of the Fed to the real estate debacle and financial system implosion we nearly had, which was due to their lack of regulatory oversight on this big behemoth so-called investment banks that had merged with real banks, resulted in QE.

And during that period that you mentioned, from the late 90s to early 08, I ran a short-only fund. And when the Fed decided to start doing QE, I shut it down because I thought it would be very – one of the things that I learned about running a short portfolio, a short book, was that you have to be sort of episodic in taking your exposure up and down. I’d kind of figured out a way to do it and survive and make money in a period of largely rising stock prices.

But I thought that QE would make it very difficult to make money on shorts. And of course, that was when I finally finished beefing up my gold positions back then because I thought it would make – lead to more inflation and a weaker currency. Some of that happened in certain ways, not exactly as I planned or as I thought.

But in any case, so now on top of that little bit of QE that Bernanke did, along the way, Yellen and Jay Powell did a whole lot more. And of course, that allowed the budget deficit to get so far out of control that I don’t even know if Scott Besant and every of the – all of the things that the best intentions that the Doge folks have are going to be enough to right the ship. We’ll have to see.

So you have the – you had the power of QE, which is now QT, even though the Fed has lowered rates. So they kind of got their foot on the gas for the break at the same time. But something that I don’t know that your readers – sorry, listeners are necessarily aware of is the other big piece that has caused warpage on top of the Fed has been the fact that the passive bid from Vanguard and BlackRock for all of target date funds has totally distorted the way the stock market behaves in trades.

Are you familiar with all this? Do you want me to give you a little snippet? No, I mean, are you basically saying they’re working as an agent of the Fed more or less? No, no, no, no, no. God, no, not that at all. No, no.

What’s happened is – and I know what I know about this thanks to a fellow named Mike Green, who first brought it to my attention back around I think it was early 20. And for the first time when he laid it out to me, I – it made the prior several years of trading that I couldn’t get my head around make sense. In essence, what has happened is that the Vanguard and BlackRock who run the huge bulk of the target date money, 401K plans, et cetera, in America, they don’t have an investment process.

If they have money, they buy. And the whole idea was predicated on Jack Bogle’s initial analysis that the wisdom of the crowd and the informed decisions of the market over time gets it correct and then over time it works. But if you get too big as the passive entities now are some around 45% plus or minus of daily activity and now they distort prices.

And perversely, they distort the prices of the biggest market caps the most because it’s a cap-weighted index. And I don’t need to go into the gory details. Folks can look up Mike Green’s interviews on YouTube.

He’s done tremendous – a tremendous service to the world explaining how this is working. But it’s like it’s on autopilot until it detonates. It’s very difficult to disrupt it.

We saw some of that in 22 because the bond market tanks enough to cause rebalancing. A lot of these target date plans, they’re a mix of stock and bonds. Bonds got weak enough so money got rebalanced and that helped create the undertow in 22 where we had both markets doing poorly.

So I bring that up because it’s part of the reason why you get these insanely overvalued companies. You know, some of them are doing okay. Apple’s had no growth for a couple of years and yet it trades at 30-some times earnings, etc.

So the reason I bring this up is the combination of that factor with the Fed has created the environment that you see today where the stock market doesn’t seem like it is really related to any underlying fundamentals. The big problem the equity market is going to have, I believe, is the bond market, right? Now the question is, will Scott Besant be able to find some way to finesse the bond market? I don’t think Doge can come up enough cuts to matter. If they found $500 or $600 billion, that would be heroic.

But it’s not enough to move the needle, I don’t think. So how this year turns out, I think is going to be a function of how the bond market sorts itself out. I think bonds are probably headed lower and interest rates are headed higher, not this minute of course, but I think over the course of the year.

So you’ve got this kind of everything bubble, right? You got the crypto and the tech stocks and the market in general. And I think a lot of the crypto trading is people that are tech enthusiasts that see the problems with the dollar or the Fed and they buy crypto as their way of expressing the things that those of us that would prefer to own gold believe, right? So that’s a quick and dirty on how we got to where we are. I know I didn’t answer your question, but I wanted to kind of set the stage.

No, no, it’s good. I appreciate it. And I live in a macro universe and I like to see the big picture and I like to know where the stage is set.

I appreciate you doing that. So no, that’s good. And let’s stay on a similar theme.

I had Bobby Iaccino on my show not too long ago and we have friends in common. I think he’s a great guy. And I was on a walk this morning listening to a little bit of your interview with Bob and you mentioned you did not think that the Fed would lower rates, kind of true to what you were just saying, and that the bond market’s actions were signaling such.

The same time we hear Trump just the other day lambasting Powell for the first time, pushing for lower rates, and at the same time, which I found kind of confusing, criticizing the Fed for creating inflation. And so if the Fed’s main tool to fight inflation is by keeping rates higher, is it even possible for the Fed to truly fight inflation if politicians and in particular Trump is demanding, and he was more or less demanding, looser policy? Well, it wouldn’t be the first time Trump wanted things both ways. He wants a weaker dollar, although as I said at this time, for trade purposes, making America great from a manufacturing standpoint, but he doesn’t want it too weak.

He kind of wants it strongish to get foreigners to buy our bonds, which they haven’t been doing. So now he wants to blame the Fed on what they did wrong, which he’s right to do that, the Fed and the Congress, but he wants rates lower because manufacturing and making the economy grow. So wanting things both ways is sort of one of his traits.

So I think that just because he wants rates lowering, Jay Powell is not going to do what Trump wants, I don’t believe. Now, some people have suggested that what they will do is they will announce a potential new Fed chairman really early on, let that fellow or gal signal what that person plans to do, and thereby sort of Trump Jay Powell. Now, potentially that’s possible, but they’re walking a very fine line because interest rates have backed up 70, 80 basis points, it was more since the Fed started cutting last fall, signaling, in my way of saying it, that the bond market is taking the printing press away from the Fed.

So now if the Fed starts to cut rates at a moment in time where the bond market is sort of skeptical of the Feds or the consequences of what they do, they run the risk of cutting rates and having bonds back up further. So there’s a lot of things that are kind of set up really quite in a very dicey manner, that they really need to have things both ways, which that doesn’t usually work. So I think the key to this year will be how the bond market behaves and what they come up with.

There will be untold numbers of announcements from the administration that will boost animal spirits because of what we just came out of. I think Stan Druckenmiller said it was the most dramatic change he’d seen from an anti-business administration to a pro-business administration, and that’ll have consequences too. So there’s going to be a tremendous amount of volatility, and you just kind of have to realize that that’s part of the landscape going forward.

Yeah, I couldn’t agree with you more on that. I’ve been saying for years, the last four years was bizarro world. You know, my success has come at outworking people, and whether it be in athletics or in business, and just to move from an environment of merit-based achievement to lifestyle.

You know, my parents were hippies growing up. I’m all about lifestyle, but I’m also about hard work and merit. It was a very difficult time for me watching what happened to our country over the last four years, and I must say I am very happy that these cultural changes are coming back, and I think kind of to what you’re alluding to, his disenthusiasm in many ways is justified, but in terms of monetary and fiscal damage that has been done to this irresponsibility over the last several years, maybe the last 20 years, Fed irresponsibility, Fed-induced bubbles, distortions, et cetera, may not be such a cakewalk.

Let’s talk about what you were just saying about the Fed. I had Judy Shelton on my show not too long ago. Fascinating lady.

I would love for her to be the Fed chairman. I know she was his choice last time. She’s a very bright woman.

Oh, she is. She blew me away, and you know, she wasn’t confirmed the first time around, but her thesis now is to create 50-year treasuries redeemable in gold, and we got into the weeds, talked about gold revaluation, and it’s funny, gold is held in every central bank balance sheet in what’s called the gold revaluation account. Cynthia Loomis from Wyoming is advocating for revaluing gold.

The Dutch National Bank is advocating for it. We went down that road. We talked about why hasn’t the gold been audited since 53 or whatnot, and all sorts of interesting discussions about gold.

I would encourage people to check it out. It was a very interesting discussion, but you know, you’ve been bullish on gold as long as I can remember. How do you see its role in the world of rising debt and continued currency instability? And I’ll just tweak it a little bit and say, you know, Scott Besant says it’s as large as holding.

If someone like Judy got on and we were actually to see a 50-year treasury collared to gold to give some credibility and stability, are you still as bullish on gold as you were when I started following you way back when? Well, I mean, the price has tripled or more, you know, depending from 500-ish. It’s up, obviously, over almost six-fold. I don’t know that I’m as bullish because the price is so different, but the reasons for needing it are just as strong and perhaps even more apparent.

What’s, I think, the real conundrum is that the price of gold is where it is, not because of enthusiasm on the part of Americans in the aggregate, but because of foreign central banks that aren’t really part of the G7 because, you know, they all kind of hate gold and, of course, Indians and Chinese buyers. And I suspect, you know, the people that buy bullion in America, you know, individuals, that’s been strong. You can see that at Costco, but that doesn’t really move the needle the same way that if larger investment flows were to head into the GLD, that ETF, then if that starts to happen, then things could get explosive because so much gold has gone, as you know, gone to Asia during this period where Americans have puked it and Asians and central banks have bought it.

So, I think the people are starting to understand the potential for inflation to be coming and staying embedded. I think inflation psychology has changed, which is a big deal. And so, I’m very constructive on the price of gold and I wouldn’t even consider selling any, but it’s not exactly the same proposition it was back in, you know, 2007 to 10, so to speak, when it was clear where we were headed.

Now, in all fairness, the amount of fiscal and monetary abuse that we’ve seen has far surpassed anything I would have thought possible. So, maybe I should say, well, I should even be even more bullish, but I have a full position. So, it doesn’t really matter, you know, what my feeling is.

If someone came to me and said, I don’t own any, I would say, well, you better buy some. Right on. And I appreciate that.

And sticking with the central banks, I just want to read you some names here. Germany, Austria, Slovakia, Argentina, the Netherlands, Saudi Arabia, Hungary, Belgium, Egypt, Senegal, Romania, Nigeria, Poland, Ghana, India, Turkey, France, Serbia, Venezuela, Algeria, Cameroon, South Africa, Czechoslovakia, just to name a few. These are the countries that have all repatriated their gold from the New York Fed and the Bank of England.

India just brought back 100 metric tons from the Bank of England and they’ve held it there since 91. Virtually all the gold that they used to leave at the Bank of England to give direct access to the LBMA is now in their possession and all the metal that has been held at the New York Fed to give direct access to COMEX has been repatriated. Now, these are the same players, to your point, that have been massively buying gold, the BRICS nations, of course, being at the forefront of it.

The last two months of the year, which we haven’t seen, those are the last two that we’ve seen reported, we’ve seen the central banks double their 12-month moving average in acquisition. And we’re seeing countries like China, the second largest producer of silver in the world, flying to Central America, buying Dore and Concentrate, doubling what the market will pay, standing at home for refining. We’re finding China and Saudi Arabia being caught by the import-export numbers, either out of Switzerland or the UK, not reporting to the IMF as much as they are actually buying.

There is a drive by the central banks, unquestionably, to your point, to accumulate gold and to repatriate gold. And it’s interesting, Poland was one of the largest accumulators of gold in the world the last two years. And I found, just as a side note, I found what the head of the Polish National Bank, Adam Lipinski, he said, something to the extent, like, we buy gold because when someone shuts off the power to the global financial system, a system where everything is held by electronic accounting records, well, this is why we hold gold.

I found that to be very interesting in the digital world we live in. That’s not where I’m going. I’m just simply saying the central banks, to your point, have been buying and repatriating it.

So what is your take on the central banks buying gold and at record levels and repatriating it? Do they know something we don’t? No, no, no, they don’t know anything we don’t. Central banks never know anything. I mean, unless, you know, they got together to cook up some scheme.

But people that think that these central banks are run by omniscient smart people have not read any transcripts. I’m tired of writing my book about the Fed. And of course, along the way, I’ve read tons of transcripts.

And so what I think has occurred is one of the things that kickstarted the gold price was when we imposed the sanctions on Russia. And given the lunatics that are running the UK, I can’t imagine if you had sizable gold position in the UK, you could feel good about it because they could do something unilateral like we did. And like they did to Venezuela.

Right. And we’re less likely to do that with the Trump administration. But the lunatics running the, I mean, my God, they’ll throw you in jail for putting up a meme they don’t like about some criminal that did something nasty to a kid and they won’t prosecute them.

So I think part of the reason that gold is moving out of the UK is because if you have an ounce of brains, you can’t really trust the rule of law there the way they’re willing to twist it around. So I think money is, sorry, if you have money in gold, the gold is moving to where you can control it. You don’t want to have to.

By definition, when you own gold, you don’t trust something, either the central bank, your currency, you’re worried about your safety. So if you have a level of mistrust or low level of confidence, then you’re not going to buy that asset and leave it in a place where you got to trust the authorities when they’ve kind of demonstrated that they’re willing to bend the laws. Look what happened during Covid.

They mandated shots. I mean, all these kind of things we’ve seen. So I think the trust level in governments, anyone who’s got an ounce of brains can see it.

But if you also have made the step to buy gold or silver, you’re not liable to leave it in one of those places. So I think that’s part of what’s caused the movement. And it’s also exposed the fact that so much gold that used to sit in London for transactions now might not be there.

But it doesn’t mean something super nefarious has gone on. One of the problems with an asset like gold or from an analysis standpoint is it’s all kind of macro. And people that tend to own gold are skeptical of a lot of things they read in the first place.

So you get a lot of stories and people get all worked up about this, that and the other thing that have a grain of truth, but aren’t really quite what they think that they are. So I don’t go in for a lot of some of the wild stories that we see. There’s an element of truth to many of them.

But some people have gone a little too far in what they think is going on, I think. Well, I think that’s a fair point. You’re kind of the yin to the gold bull’s yang.

I get it. And that’s fair. Staying on that thread, let’s pull on just a tad bit more.

You know, a lot of the people in this industry have been screaming and predicting the end of the U.S. dollar’s dominance for a long time, yet the dollar keeps proving everybody wrong. What would it take for the dollar to collapse? Could it actually? And what would it take? No, I don’t think it really can. And here’s why.

Against what? The euro is worse than the dollar. Now, the U.S. dollar could get quite weak versus the Japanese yen. In fact, I’m lonesome yet and I want to build at that position.

The purchasing power parity for the yen indicates it’s undervalued by maybe 30, 40 percent. Those numbers don’t always matter in the short run, but over time they often do. And I think Trump is going to want to get the yen lower.

Remember, go back to manufacturing. And Scott Besant, I don’t know his current position, but he’s been pretty friendly towards the yen for some time in addition to his belief in gold as an important asset to all. So the dollar could decline versus the yen, but all of these pieces of colored paper are flawed.

And that’s part of what’s bullish for gold. There’s no Deutsche Mark anymore. The Swiss franc is a joke.

They printed money to anchor themselves to the euro and then they went out and bought stocks. Okay, it worked because we’re in this craze. So there’s no currency that you can really feel good about.

I’m sure there might be some small ones. So that’s part of what’s caused gold to be everyone’s default. If you’re a European, do you want to buy USD? Well, maybe, but maybe not if you’re good at analysis.

But the US dollar, I think, will stay the world’s reserve currency. We would have to do some – we’d have to see some really crazy things for that to happen. And then again, I go against what currency is going to supplant it.

Now, maybe they’ll be able to – maybe they’ll conjure up some sort of gold-backed currency down the road. But again, politicians don’t want to do that. They’re just a bunch of drunk grifters for the most part.

So I don’t see how the dollar collapses. But if I’m wrong about that, if I’m not pessimistic enough, well, my gold will just be even more. You don’t have to believe that to want to own gold.

I think that’s the point. Well, I was only going to ask you one more question, but now I’m going to ask you two. And let me set the stage.

That what you’re saying is kind of similar to Brent Johnson’s milkshake theory, that the dollar is just too embedded. Or Doug Casey saying it’s the cleanest shirt in the dirty laundry hamper, or the prettiest mayor at the glue factory, whatever you want to talk about. Delmarousseuf, the former president of Brazil, the head of the Brixton Development Bank, came out not too long ago and said, we have agreed in principle to a common settlement currency.

Not a common currency with the Brix. Who knows how long, if ever, they’ll do a common currency. But a common settlement currency called the unit, which would be 40 percent backed by gold and deliverable, 60 percent by the currencies that make up the Brix and Brix Plus nations.

Could a common settlement currency, because let’s just say one thing, the 10-year treasury, as an example, which to your point had been weaponized, its performance is one half of gold’s performance over the past 25 years. Gold’s doubled its performance without that counterparty risk, without the inflation risk, without the uncertainty, without the default risk. Any of that risk is out.

So could the dollar’s dominance be dramatically curtailed by what amounts to already pretty damn close to 60 percent of human population in this growing Brix and Brix Plus entity, which is growing. Another 40 countries have formally applied. Nine have just been approved.

Indonesia just joined. Could a common settlement currency, which is a basket of local currencies and gold, redeemable, traded over Project Enbridge? Could that chip away at the settlement status? And then instead of these countries taking the reserves and putting it into treasuries, put it into commodities or something like gold, which the BIS reclassified as the only other tier one asset next to treasuries. Could that be the plan? In other words, trade in local currencies, settle in gold, and put the reserves in gold instead of treasuries.

Am I way too far off on that or do you see that as a possibility? Well, I can see it as a theoretical possibility. A lot of steps would have to play out in the interim. That would take some time.

That would be the market looking at what the good and the bad of whatever the Trump administration can put together or the fact that the numbers are too big that even the most well-intentioned administration, you know, over the last 75 years, the problem’s too big. So I think it would have to be almost a recognition that the problem is so big that even the most well-intentioned administration and less corrupt, at least corrupt administration were likely to have, couldn’t solve the problem. Then that would push us along, you know, down that path more.

And so, but again, that would just probably put, cause more money to flow into gold and be a bit of a booster to the price. But I don’t think that necessarily, I mean, and it would undermine, undermining confidence in the dollar or what it can do for you just causes people, since other currencies are colored paper so bad, just increases the willingness to maybe own gold or silver or for those crypto folks out there that they’re going to want to buy more crypto as long as that works. So I, but again, I’m not saying that, I think the milkshake theory is about U.S. exceptionalism and I’m more in the cleanest dirty shirt camp.

There’s quite a bit of difference between those two. I mean, yes, the U.S. may be exceptional, but we have an exceptionally large amount of debt and paper to roll at the same time. So I just, but you see people that talk about the demise of the dollar, that doesn’t have to happen.

We don’t need to root for that and we can still, our gold will more than protect us depending on how much you own, you know, depending how big your position is. You don’t need those draconian outcomes to have a success. We don’t really want that to happen.

If it were to happen, we’re protected and into that mess, you could maybe sell your gold and even buy treasuries because they would probably have to yield a really sizable rate of return in that kind of a crisis, just like they did in the early eighties. Yeah, I think anyone who would root for that certainly is not someone that I would be a fan of. And I don’t think, I would hope people that own gold and talk about these things, myself included, would never root for that.

But, you know, being prepared is always something that I think even just about anyone would understand. It’s just a matter of some people take it a little too far. I get it.

Fair enough. And I appreciate your candor. Last question, Bill.

And I really do appreciate your candor in all of this. It’s a refreshing perspective. Let’s just make this one easy.

If you had to make one bold call right now, something that sounds crazy to most people, wouldn’t sound crazy to me, but to most, but you generally maybe even believe it yourself, what would that be? Oh man, gosh. Didn’t mean to throw you such a curve ball. Yeah, I, uh, okay.

I think when people look back, they will see, this insane enthusiasm slash euphoria over AI will be seen to be one of the biggest financial head fakes, certainly from the amount of dollars flushed standpoint. It’ll be one of the biggest fantasies that cost folks money that we’ve ever seen. Fair enough.

So I take it you’re not bullish on video these days? No, but I wouldn’t be short it because of the environment we’re in. I started out my life out of college after I goofed around for a while as a software engineer. So I’ve sort of seen this whole AI movie evolve for 50 years.

And I think people have gotten a little bit carried away as to what these large language modules really mean and all that. So anyway, you asked me to pick something outrageous. No, that’s very cool.

And I hope people listen to you because any guy who made his name, um, made his mark on shorting, running a short fund is someone who is, is a big thinker and understands it. And I think it’s a whole hell of a lot harder to short than it is to go long, lot more dangerous too, if you don’t know what you’re doing. But, um, I, I do appreciate your candor.

And I do think it’s important that we, we listen to all sides of, of, of the coin, no pun intended, both sides of them. In fact, there’s a third side there too, but, um, I, I appreciate it, Bill. And, and I, uh, I thank you for coming on.

What’s the, what’s the best way for, um, people to check out more of what you’re doing and best way to follow you? Well, I, uh, I’m on Twitter X, I guess we call it. Um, my handle is at Fleck cap. Um, mostly I just kind of react to things that I see.

It’s not like I, I try to divulge a lot of what I’m thinking there. Um, and I have a website Fleckensteincapital.com where I write a column. Um, and I write a column every day about the market, which I’ve been doing since 1996.

And I asked, and I answer questions every day. Um, uh, it’s about 12 bucks a month. Um, I try, I, I, I made it cheap so that everyone could afford it.

And, uh, I wasn’t trying to get rich. In fact, all the money winds up going to charity. So I just, I’ve been doing it for so long.

I enjoy doing it. And, uh, it’s, it’s fun to help people out. And occasionally I get some really nice thank you notes.

So anyway, if you want, you’re still running your fund, aren’t you? Uh, I know I closed my short fund in oh nine. I have a small investment partnership that I’ve been running since then, but that’s what I mean. I mean, can people invest in what you’re doing or is there opportunities for people? No, that’s, that’s closed out.

No, I, it’s been for a long time. Yeah, no, it’s just, it’s just me and some friends and folks have been with me a long time and, uh, I’m not trying to grow it. I’m not looking for money or anything like that.

I just wanted to make sure because, uh, you know, it’s always, it’s always good for, for people to have opportunities and, and to, um, check something out that, uh, if it resonates with them, heck you’re someone I’d invest money with. So if you ever get back in the biz, let me know. Thank you, Bill.

Thanks again for coming on, man. I really do appreciate it. I hope to have you back again after things shake out a bit halfway down the, the year and we’ll reflect and see what’s going on.

And, um, in the meantime, I wish you and everyone else out there a, a very happy and healthy new year. It’s going to be an interesting one. You know, the Chinese curse may live in interesting times.

And I think this discussion proves these are, these are interesting times are going to be interesting. All right. Yes, indeed.

Uh, thanks again, Bill. I do appreciate it, brother. My pleasure.

My pleasure. Little by little with Andy Schechtman.