Edit to my previous post since the link I provided didn't actually get the right Fleckenstein Wrap of April 28th. Here's the entire text, which includes the comments on RMBS.
John
Daily Market Rap
Bill's Upcoming TV Appearances:
First Thursday of the month, 2:20 PST, CNBC debate.
April 28, 1999
Market Rap with Bill Fleckenstein
Dot.coms dip lower
Asia was weaker last night led by Hong Kong, and Europe was quiet this morning.
Dog day for dot.coms... The big news overnight was AOL's (AOL) earnings. As expected, the company hit its whisper number and the stock was initially trading down last night and this morning. Then in the early going it snapped back. I think it's potentially a harbinger of things to come that virtually none of these Internet stocks are really trading up on their numbers and are all going down. If we wind up having a speculative peak in the market right around here someplace, that may turn out to be the dog that didn't bark.
Amazon anticipation...The sell-off that started in the Internet sector basically continued; after a half-hearted attempt at a rally in the early going, the stocks leaked all day. Tonight we're going to get Amazon's (AMZN) earnings and I would speculate that if Amazon can't turn around the tape in the Internet sector, we could easily have a rout. Last week when we had the big reversal and we talked about the fat lady maybe singing, a lot of damage was done to speculators owning Internet stocks. Yesterday we talked about the margin calls that went out or were pending. If we get another shot to the downside, it could easily happen.
I firmly believe we could have a wipeout just three days after the Dow hits a new high, because of how people have positioned themselves, as I have articulated in the Rap. I think Amazon will be important not so much in what it says, because the company has the greatest business plan in the world (It gets to lose more money every quarter and Wall Street gets happier and happier.) What's important is the reaction to what the company says. If the Internet stocks croak on the back of this, then we can say that maybe the fat lady wasn't singing, she was actually yodeling, we just couldn't quite understand what she was saying.
All this is pure guesswork, and as I've said over and over it's a very low-probability event to try to catch this. But I think action in the Internet stocks is the total key to determining when exhaustion is actually taking place.
Micron moves...Yesterday I mentioned that DRAMs had traded down to $6.50; it also turns out on the tape late last night that J.R. Simplot, founder of Micron (MU), recently sold 4 million shares at $37. What's interesting about that is, all through the monster rise in 1995 he never sold a share, then he got a margin call at about $20 in late 1995. As the stock made its way back up to $80 recently, he sold about a million shares in the 60s. So this is only his second (unforced) sale. I think that's most interesting, in light of the fact that we know Texas Instruments (TXN) has 44 million shares that it could potentially sell.
Dead fish department... The reason I bring that up is I'd like to illuminate yet another new dead fish. We had one of our few live fish in the semiconductor business, Tom Kurlack, who used to be at Merrill Lynch and departed for the Tiger Fund. A new analyst came out and reinstated coverage with an accumulate, and has some of the most preposterous earning estimates I've seen in while based on what's going on. He thinks that in the fall quarter Micron can earn 67 cents. The company is losing copious money at the price prevailing in the spot market, and it is only going to get worse. I think I'd vote with J.R. Simplot and be more worried about the Texas Instruments stock for sale.
It does turn out that last week Merrill had a big seller on its desk, and putting two and two together I'd speculate that maybe Merrill had J.R. Simplot as a seller. Perhaps the desk was under water, who knows. I'm sure an analyst wouldn't recommend something just to help out the trading desk or maybe to catch a piece of Texas Instruments' business, but cynics might think that's exactly what's going on.
Dumb and dumber... Speaking of the obvious and not-so-obvious, McKesson (MCK) came out today and announced that it was going to have to restate earnings, etc. etc., and the stock was promptly halved. The interesting spin on the TV this morning was that nobody could possibly have known and the bad news didn't leak because the stock was up a deuce yesterday. Well, I have a different interpretation. The stock was up because analysts have been recommending it ever since the company reported its numbers. And that's because the analysts are too dumb to do any homework.
A friend of mine who had been short was forced to cover part of his position, and he said that Bear Stearns had made it the stock of the week and Merrill Lynch upped its rating. So that's why the stock was up; it's not that it wasn't knowable that there was a problem, it's that you would have had to do an ounce of homework to figure it out. It's not a stock that I had any involvement in, but my friend's experience shows just how absurd things are these days.
Metals find mettle... The XAU was strong and the metals were trying to do better again today, which was interesting in the face of the continuing onslaught of verbiage from the IMF. That's usually good enough to knock the gold market down on a pretty regular basis. Away from that, the bonds were weaker as was the dollar versus the yen, but it didn't seem to make much difference anywhere.
Gems from Greenspan... Yesterday on Reuters, there was a story from New Zealand's The Dominion newspaper in which Greenspan told the New Zealand Treasurer, Bill Birch, that he believes the danger of a major plunge on Wall Street has eased. I would just like to remind readers that the chairman had this to say one time before: "It is very rare that you can be as unqualifiedly bullish as you can now." That was on Jan. 7, 1973, a couple of days before the top of the market and before the onslaught of one of the worst recessions we've had in the last 50 years. Of course, it won't be anything compared to the one we're going to have when the bubble bursts, but that's a different issue.
Not to be outdone by the boss, William McDonough, also of the Fed, did his best Alfred E. Newman imitation during a speech when he said, "U.S. Markets Unlikely to be Economic Problem." It shows that he, too, has absolutely no understanding of the bubble. How can anyone in his or her right mind say that this isn't likely to be a problem when the U.S. stock market is approximately $15 trillion and the world gross domestic product is only $25 trillion? People like that just have to have no understanding of how these things work, as apparently the Fed doesn't. Of course, that's my biased viewpoint, but I've been pretty consistent about suggesting the Fed has fomented a bubble. They've been doing their best to be cheerleaders about this bubble: breaking their arms to pat themselves on the back, suggesting what a wonderful job they've done.
Good as Goldilocks... What violence there was to the upside today was in the cyclical area: Alcoa (AA), Dow Chemical (DOW) and things like that were the latest cyclical moon shots, up 5 and 10 percent. As oil went from $19 to $12, that was supposed to be good for the Goldilocks scenario, and now that it's gone from $12 to $19 it's also supposed to be good for the Goldilocks scenario. So again, all news is perceived to be good news, which is why it's so important that the Internet stocks are not going up on the back of good news. Not because it means anything, it's just a sign of speculators potentially being out of money and exhausted, which is the way this thing has to end when it ends, in my opinion.
There wasn't much up today other than Micron, which we commented on, and Rambus (RMBS), another piece of junk that's also a memory supplier with a product that in essence doesn't work. So two stocks that had been sort of in the chip area and had been going down both went up today, just to make sure everything was good and goofy.
The possibility of monster trouble has never been greater because so many people own so many absurdly priced securities that are so volatile, using so much leverage. The danger has never been higher. It may get higher still, but it's never been higher thus far.
Email, etc.... I wanted to let readers know that I've gotten email recently and I haven't been able to respond to it because the reply mailbox has been wrong. So if some of you have not gotten back email that was a direct question, it might have been because of that. There were several that I tried to respond to that I couldn't send back.
I also received a bunch of emails about the fact that I recommended researching Ragen MacKenzie, and folks pointed out that gee, didn't my sister work there? And the light-hearted answer is yes; she still hasn't been fired. The reason people who asked the question know that is because I mentioned her as a live fish a couple of weeks ago. So when I suggested that folks might want to take a look at Ragen MacKenzie (RMG) on the back of First Union (FTU) buyout of Everen (EVR), I figured that people would remember I had just told them that she worked there. As an aside, I don't have a position in the company myself.
This is just another one of the reasons I'm reluctant to recommend stocks, in addition to the reason I've mentioned in the past that I don't always know what's appropriate for each individual. Somebody always complains about something. I remember last summer that I suggested folks might want to take a look at Go2Net (GNET), which was then trading at $8, based on what was going on in other Internet stocks, and folks accused me of pump and dump. So it's very difficult for people to have it all ways. Often times readers clamor for picks, and then when you give them one they give you 10 reasons why you shouldn't have given them that one. Readers need to figure out which way they want to have it, because they can't have it all ways.
Please be sure you've read "What is the Market Rap?" before you send me email. As highlighted in this outline, there are certain questions to which I am unable to respond.
William A. Fleckenstein <fleckenstein@go2net.com>, special to StockSite.
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