TSC on Fleck: "Big Rally? Not Until Investors Are Scared Witless and Stop Speculating"
By Aaron L. Task
Senior Writer
3/5/01 7:08 PM ET
"Somebody's Been Sleeping in My Bed"
Following a refreshingly upbeat tone in the weekend financial press, the Dow Jones Industrial Average rose 0.9% today, while the S&P 500 gained 0.6% and the Nasdaq Composite climbed 1.2%. Inclement weather, or really the threat of it, subdued trading, but the session boosted hopes that a sustainable rally is unfolding.
Particularly uplifting to optimists was that separate warnings from LSI Logic (LSI:NYSE - news), Vitesse Semiconductor (VTSS:Nasdaq - news) and Cypress Semiconductor (CY:NYSE - news) failed to deter buying in general, or of chipmakers in particular. The Philadelphia Stock Exchange Semiconductor Index rose 5.2%, and each of the three offenders closed higher.
On the other hand, today's action and all the newfound rally talk means "people have learned nothing in the past year," according to Bill Fleckenstein, of Fleckenstein Capital in Seattle. "You can't get a bottom when everyday people try to buy the SOX. The bottom is when you're scared to death and puke 'em out."
As you might have guessed -- and as I noted late Friday in RealMoney.com's Columnist Conversation -- Fleckenstein, who runs $50 million but declined to discuss performance, has not joined the ranks of former bears who have recently become more optimistic, including Don Hays, Doug Kass, Richard Russell and Steve Leuthold. Instead, he believes many stocks remain wildly overvalued and that many investors aren't investing -- they're simply "chasing pieces of paper."
"Even guys who didn't believe in the mania are looking for a big rally, but I'm not going to play that game," Fleckenstein said. "Everyone has got the same trade on -- they want to own [stocks] because they act well in the face of bad news or because Alan [Greenspan] is going to save the day. Maybe they'll get it right, but it doesn't seem likely."
He remains short a host of names, notably chip and equipment stocks such as Lattice (LSCC:Nasdaq - news), Xilinx (XLNX:Nasdaq - news) (which warned after the close), Altera (ALTR:Nasdaq - news), Intel (INTC:Nasdaq - news), Micron (MU:NYSE - news), KLA-Tencor (KLAC:Nasdaq - news), Applied Materials (AMAT:Nasdaq - news) and Novellus Systems (NVLS:Nasdaq - news).
He's also still short tech behemoths IBM (IBM:NYSE - news), Oracle (ORCL:Nasdaq - news), Dell (DELL:Nasdaq - news) and Cisco (CSCO:Nasdaq - news).
Fleckenstein conceded there was an opportunity-cost to his going bearish on technology long before it was fashionable (or profitable). But he also noted (correctly) that many of his concerns -- notably the oversaturation in the PC industry -- have proven accurate, and frets most investors weren't nimble enough to be long and then get out (or get short) at the critical junctures.
Maybe those expecting a rally now will be justified and "I'll get chased out," he mused. "But I'll be bullish when stocks represent value, and they don't represent value. It is still a Ponzi scheme."
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Editor's Note: Tune in Tuesday morning for a special as the Taskmaster tackles the prickly issue of inflation, stagflation and recession and outlines how an investor can combat that three-headed beast.
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Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to Aaron L. Task .
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