Fleckenstein, who predicted the financial crisis of 2008, is worried that reckless monetary policy by the Federal Reserve has ushered a period of compliancy by investors. Few companies and households, he argues, could stand even a small interest rate hike.
“The market is uniquely crash-prone,” Fleckenstein told CNBC’s Fast Money last week. “I think the market is very brittle because of high-frequency trading, ETFs, a lot of momentum from investors. I don’t think there’s going to be any painless back door.” (Source: CNBC, August 7, 2015.)
The markets have continued to trade on the “fumes” since the end of the Fed’s quantitative easing program. Once those fumes run out, Fleckenstein warns, Wall Street is in for another shock.
“The reason why I closed my short fund in March of ’09 is the very same reason that I’m going to launch it again,” he continued. “And that’s because of the Fed.”
When he was asked which industries are to be the most vulnerable to a stock market crash in 2015, Fleckenstein warned investors to get out of semiconductor stocks Intel Corporation (NASDAQ:INTC) or Skyworks Solutions Inc. (NASDAQ:SWKS).
“I’m short semiconductor stocks because there is an inventory correction at a minimum, and there might be saturation,” he warned.
“Intel’s got some unique problems. I don’t think they guided properly on either of the last two quarters, I think expectations are still way too high,” he said. “So I have a stock that can’t really go against me that maybe I can make 30% on the downside.”
“The companies in the Apple food chain, whether it’s NXP or SkyWorks or Cirrus, they all had good quarters and they guided higher,” he concluded. “But Apple didn’t hit its units, and it’s got a lot higher units to hit in the third and fourth quarters.”