Bill Fleckenstein

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Bill Fleckenstein

posted on Jun 01, 2010 10:49AM

Last fall, my wife and soul-mate, Susan and I were in Seattle and we had a lovely dinner with Bill Fleckenstein and his wife. Bill founded and ran the most successful "shorting fund" from the mid- '90s until he closed it down in 2009. He appears with regularity on CNBC and writes a daily "Rap" column. He also wrote a must-read scathing book on Alan Greenspan. He has thrived in a "main stream industry but his views and opinions are hardly main stream. Bill is a wine connoisseur and he brought several bottles from his wine cellar to the restaurant. He is an interesting man, very bright and very successful. And very charming. Bill sends us referrals and is a Miles Franklin client. He is on the board of Pan American Silver and owns their stock, but he also understands the importance of owning physical gold too. When talking about gold to Bill, it is like preaching to the choir - but he does not agree with GATA or Ted Butler and does not accept any form of "conspiracy" explanations. He is friends with many of the gold and silver traders who work for the bullion banks and flatly states that the whole manipulation thesis is nonsense. He and I agree to disagree. He may be right. I may be right, but in the end it matters not because there are many strong fundamental reasons why gold and silver will outperform virtually all other asset classes. Here is an interesting piece by Bill Fleckenstein, long-term gold-phile.

On the subject of gold, I would like to make a few points. It's really interesting to me that there is so much angst concerning gold, given that it has been the longest-surviving monetary asset by a factor of almost 100, versus the short lifespan of the average paper-currency regime.

It is also interesting that the lexicon is riddled with references to gold as being a very desirable asset to possess. People talk about such-and-such being "as good as gold" (never "as good as colored paper"); or they'll describe some great business as "a gold mine"; or, they'll talk about "the golden rule" as though it's an ironclad law. Yet, most people continue to treat gold like dirt, or worse.

Gold has been an asset that's helped protect and deliver gains vs. paper money for the last 10 years running, yet the popular press heaps nothing but scorn on it. Even people who own gold seem to suffer angst regularly, based on the questions I continually receive in Ask Fleck. Meanwhile, Bubblevision and other media outlets persist in telling you how great stocks are, although this asset class has cost people money for a decade.
The current level of skepticism is nicely illustrated by the recent short-interest surge in the GLD exchange-traded fund. It's now doubled, standing at about 30 million shares (around 3 million ounces). Meanwhile, when the gold market recently fell out of bed, ETF holders at the margin liquidated no ounces; and in the last couple days, they added a whopping 50 tons (a phenomenon occurring in other places around the planet as well). Thus, as a wise commodity-trading friend said many years ago, you can be with the trend and still contrary.

While I don't believe that gold is a totally contrary concept, it is contrary from the standpoint of there being so few avid believers though the list of high-quality investors who now hold gold has become quite impressive.

I keep waiting for the day when folks realize that if you invest in the shares of a gold mining company, you basically own a piece of "the money-creation machine." It's sort of like owning a central bank that isn't staffed by losers. In any case, at some point I expect to see the masses rabidly bullish about gold and gold mining companies, though obviously we're a long ways from there. Bill Fleckenstein

I hope all of you had a wonderful Memorial weekend. I certainly did. Our best, from Miles Franklin, to all of you - God Bless America.