Bill Fleckenstein: Coronavirus Will Cause A “Confidence Crisis” In The Fed

Money manager and metals specialist Bill Fleckenstein appeared on the Quoth the Raven Podcast on Sunday to give his thoughts about gold, the market’s reaction to coronavirus and the Fed’s coming “confidence crisis”.

Gold

First, talking about last week’s move in gold, Fleckenstein says he doesn’t attribute the move to margin calls, as many had speculated. He instead says that gold likely just fell victim to “hot money”, which he noted often happens when gold spot rallies hard and the miners don’t follow – exactly what happened last week.

Bill said:

“Gold has gone up, but the mining stocks really didn’t participate. That concerned me because when the mining stock sputter and gold keeps going, then gold gets hit,” he says.

He continued:

“When gold was spiking on the coronavirus news, it didn’t quite act right in conjunction with other things, and I was a little nervous. Then, of course, it got destroyed on Friday. I suspect there was a lot of trend following money in gold. A lot of hot money. Hot money because it’s going up.“

The Market’s Volatility

The rally late last week was because people thought the “Fed was going to save them”. Fleckenstein says he doesn’t believe it to be the case that the Fed is going to give the market a rate cut anytime soon. He thinks the market will have to crash further before central banks intervene.

He also doesn’t think we’ve seen real panic in the equity markets yet. 

“When I look at the personalities of some of the absolute crap, like Tesla, they’re still valued like a total joke. I don’t think we saw a hell of a lot of panic,” he says.

“This was not about illiquidity”.

The Fed’s Coming Crisis

Bill continued: “The Central Banks are going to get panicked. They’re panic prone because they’re so stupid,” he says.

He also thinks the market is eventually going to wise-up to what the Fed is doing: 

“This is the moment in time we have been waiting for. Those of us who think these central bank policies are no good. We’re at the moment in time where they could lose credibility to a certain degree,” he says of the Federal Reserve.

“Slowly but surely people could realize it’s not working.”

He continued: “The Fed probably won’t cut today and the market’s going to keep getting tatered until the Fed does. But the real opportunity on the short side will be the big rally after when the Fed cuts. That rally ought to fail. If that failed rally occurs and they start down again, they will accelerate a lot, and you will have broken the psychology of the ‘The Fed can rescue us’.”

“Then you can have much more of the crash. That’s kind of the road map that I see,” he says.

You can listen to the entire podcast here:

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