“Markets sometimes do bizarre things for bizarre reasons… secondarily the problems in structured credit have not been a problem because these assets have been marked to a model that we’re now finding is ridiculous. And we’re only just beginning to get any price discovery in that market.”
Fleckenstein also says “And it’s not just the subprime contagion… Subprime structure credit is what allowed everyone with a pulse to get a mortgage for however much they wanted - and that helped power the economy. That is behind us and that is why the consumer data is weak. To say all this is contained is a giant leap of faith. It may get worked out.. but it’s not contained just yet.”
How about the global expansion?
“It is a fact the world is expanding,” says Fleckenstein. “But that doesn’t justify… ignoring any and all risk.” He adds “I’m not saying there aren’t good things happening in the world.. but there is a whole list of things being ignored and I think they will matter.”
Is there a catalyst for shorting stocks?
I have a couple positions in subprime oriented companies, but I haven’t done much beyond that yet…” says Fleckenstein. How much (the subprime slime) is going to matter, if at all I can’t tell.”
Is the Bear Stearns hedge fund collapse a catalyst for you?
“I think the information that we’re getting… is a clear indication that there is a withdrawal of credit. All of the signs are there," replies Fleckenstein.
He adds, "I would be getting more aggressive but for the fact that the tape is on fire… while I have a big position in MGIC Investment Corp. (MTG) because I think their insurance and subprime business are going to be problems… I don’t know if the market is ready to trade the information. But I feel strongly things have gotten worse and are going to continue to get worse.. I’m on red alert every day…”