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There Is Now A Danger That “All Hell Is Going To Break Loose”


(King World News)   “Over and over and over again we see people who do not understand how the economy really works.  They don’t understand these Fed policies only misallocate capital and create inflation.  These policies don’t create any sustained economic activity, and yet they keep making the same mistakes.

A lot of those people want to believe that everything is going to be OK because they want to believe in the silly concept of ‘Goldilocks.’  So all of these people were rooting for the Fed to tighten today because they believed it would have meant that they were right, when it doesn’t.  So, now there are a lot of people that were wrong.

The question is, how are the markets going to finally react?  We are going to get to see how high the bond market can rally in the wake of no tightening, but most importantly, where it fails.  That’s going to be the most interesting thing to see from a big, macro standpoint.  Obviously from a positioning standpoint, people who have not believed in the Fed, and who have metals, they ought to finally start getting rewarded.

Today is truly shocking to the people who have had it dead wrong.  This is shocking because the Fed had been laying the groundwork for tapering for so long.  But, remember, in 2009 the Fed was talking about ‘exit strategies.’  Now we are just talking about cutting back on a part of the stimulus and they can’t even do that.  So, one of these days people are going to realize that they are totally trapped.  I just can’t tell you when the crowd is going to change its mind.

This should be a major turning point for gold because so many people have hated it for the wrong reasons.  Since gold peaked in the fall of 2011, the Fed has printed another $1 trillion.  So gold has a lot of catching up to do.  This ought to be gold’s moment, right here, right now.  Gold should start a huge leg higher.  Certainly the gold stockshave a pretty good setup from a risk/reward standpoint, from where they are today.  You certainly can’t find a more hated group on the planet.”

Eric King:  “Bill, you were saying to KWN recently that this was going to reveal that the Fed is in fact trapped.  Can you elaborate on that in the aftermath of this decision?”

Fleckenstein:  “Since April, the 10-Year has gone from about 1.6%, to as high as 3% recently.  Now we have to see when this rally in bonds stops.  The bond market will then roll over and then the Fed won’t have the tapering as an excuse.  It means the bond market has ceased to price in the scenario that the Fed wants, and the bond market is not responding to the Fed’s moves in the short-run.  In the old days we would call that ‘losing control of the bond market.’  And if that starts to happen, all hell is going to break loose.”

This story was first read on Before It’s News