"The Bond Market Is Going To Continue To Be A Problem" | Bill Fleckenstein

**Bill Fleckenstein** (0:00)
You've got to really thread the needle perfectly, and it's unlikely that that's possible in the world that we live in. So I think the debt, the bond market is going to continue to be a problem.

**Adam Taggart** (0:19)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. It's said that the Trump put on financial markets is not on the S&P in the second term, but rather on the 10-year US. Treasury yield. The rise in Treasury yields since 2022 has sent the cost of servicing America's federal debt to record highs, exceeding spending on national defense for fiscal year 2024 US. Treasury Secretary Scott Bessent has indicated his and the president's desire to get the tenure comfortably under 4 percent, but that's proving difficult. In fact, after falling to 4.1 percent two weeks ago, the yield has quickly shot back up to near 4.5 percent as of the day of this recording. Why is it proving so tricky to tame bond yields? What will it mean for the economy and the markets if they can't be tamed? For answers, we've got the great fortune today of turning to veteran money manager Bill Fleckenstein, founder of Fleckenstein Capital. Bill, thanks so much for joining us today.

**Bill Fleckenstein** (1:22)
Thanks for having me back, Adam.

**Adam Taggart** (1:24)
It's always a pleasure, Bill. There's so much going on here right now. It's hard to know where to start. Obviously, I want to talk with you about bonds, and we'll get there in just a moment. Maybe before we tackle bonds, if we could just zoom way up for a second. I had the good fortune of interviewing one of your partners in crime, Grant Williams. You guys do a great occasional podcast together.
Grant was a very thoughtful guy, but even more thoughtful than normal. What we really dove deep in is the macro sea change that he sees going on right now. In terms of just its scope, and in Grant's words, he said, he feels like we're kind of going through, or on the way to going through, like a once in a century type of change. And a lot of this has to do with the switch from globalization back towards sort of mercantilism, and nationalism, and protectionism, and stuff like that. But there's some other macro changes sort of tied into that. And so I guess my kickoff question for you, Bill, is do you see the world the same way? Like do you see a sort of similar disruption to the status quo at that level, or do you have a different take on things?

**Bill Fleckenstein** (2:43)
Well, to be honest, I haven't had a chance to see. You just did that interview very recently.

**Adam Taggart** (2:47)
We just did it, but you've been talking with Grant recently, so I'm just curious.

**Bill Fleckenstein** (2:51)
When we get together, we all wind up having the interviews, so we don't actually chit chat about what we each think. I'm a little behind on his view specifically as to what is it along the fourth turning lines of things or?

**Adam Taggart** (3:09)
I would say yes. Yeah. I don't know if Grant ever really mentioned the word fourth turning or not. They might have, but yeah, I was on that level.
Really, his main message to the viewer was, just don't be too sure about anything. Yeah. Because the type of changes that might occur could be so bad, could be such sacred cows, things that today we just don't think, no, well, surely that could never happen. He's like, it might be that type of change.

**Bill Fleckenstein** (3:39)
Well, if you just examine the politics in America for a second.
A person that would have been a mainstream Democrat 10 years ago is now considered far-right and a Republican is alt-right or whatever they. Fascist. Yeah. The media in America is unfortunately so corrupt and so willing to lie about anything that bits their agenda, which dovetails with a certain segment of the Democratic Party and the liberal progressive type people. I don't know how you can call yourself progressive when you back some of the policies if they back, but nonetheless. So when you look at that and you look at how things are stood on their head, that alone tells you that something unusual is afoot. Or look at what they've done to free speech in England, the direction is going in Canada. The direction we were here during COVID, where Twitter shut down Alex Berenson and any discussion that went against the narrative, almost all of the narrative which was wrong in what it said from a quote unquote trust the science standpoint. So we've been experiencing a dystopian Twilight Zone environment now for four or five years. It's gotten continuing to get more extreme in other English speaking countries. Americans put their foot down and voted in Trump. Now we'll see what happens in the midterm elections and whether we stay on this path towards maintaining free speech or we get more totalitarian like the other English speaking countries. So from a societal standpoint, there's a lot of alarming trends. And when you bring that into the investing side, you've got those things that are at work. You've got these macro issues. And then you've got the schizophrenia that is generated by Trump's approach to everything. Whether it's good or bad, I mean, you know, with these, the tape bombs that come and go and, oh, I was just kidding. I said 140, I meant 130 I mean, that's the way he is. He did it last time and he's doing it again. So if you're getting caught by that, then shame on you because he already showed you the way he operates. And that's just his nature. And so we have this out of control spending. And what Doge has shown us is how completely and utterly out of control it has been and how willing the government has been to just incinerate money. And what's been even more shocking is that there are a contingent rule left that is going after Elon Musk for exposing the incineration of our taxpayer funds. I mean, that literally should be a Twilight Zone episode. So I think the bond market is the key to everything, as Bessent has noted and focused, because we're kind of at the point of no return or past the point of no return, given the size of the deficit and the intractable, apparent intractable nature of the deficit. Did I say deficit? I meant national debt, in 37 trillion and growing quickly. That's a big problem. I think the last time we were on, I said Bessent's big trick is going to be able to try to promote economic growth to get us to be able to grow through this without having interest rates go up, so he can try to get the debt refinanced to get us through this period and the bond market is holding the cards. So as we had the momentary weakness in the stock market, where bad news and fundamentals were big enough to trump the passive bid and the market plunged, rates went down to some degree. Now, they're back up, as you noted earlier. So the bond market is still a problem for the country. It's a problem for this administration because they're in charge now, but it was going to be a problem. It would have been a problem, and an even bigger problem had the Democrats won.