Greenberg: Fleckenstein to Restart Short Fund
As it turns out, he's one of several ex-short-sellers I've talked to in recent weeks who have said they think the time is right to return.
So far, Fleckenstein, who made his name shorting mostly tech companies, but who quit in 2009 to start an opportunistic long-only fund, is the first to go public with his plans.
"For four years and counting, there was no reason to think about shorting," he told me. "I survived from 2000 to 2009, even when the market was going up, because I made what the Fed was doing a key variable."
When that variable changed, he figured "it would be impossible to make money on the short side. I knew the Fed and the other central bankers would print a tremendous amount of money and it would be impossible to be short until the time the bond market takes away the printing presses -- I mean, forces them to stop."
Which, he believes, is where we are right now.
He cites the dynamic between the widespread belief that the Fed would slowly turn off the low-interest rate, bond-buying, quantitative easing cash spigot by so-called "tapering" -- and the stubbornly steadfast yields on 10-year Treasuries.
On tapering fears, he points out, yields leaped from 1.6% to 3%. But the Fed didn't taper and rates backed off, but just down to 2.7%. That's a far cry from pretapering-talk levels.
Fleckenstein believes this is a sign the bond market, which usually tracks the Fed, is shrugging it off -- something that hasn't happened, he says, since the Volcker years. "People say, "How can that happen? I say, the markets can do anything."
If he's right, Fleckenstein says, the bond market's dominance over the Fed will become evident over the next few months.
"I could be off by a year, I don't know," he says. "I may have to sit in cash for a year. I know the bond market will have to stop the Fed. Money printing was the problem and more of it won't fix anything. But you can't win that argument as a short until such time that the bond market stops it."