Fleck...10/22/01
The Market Rap
William A. Fleckenstein
05:15 PM 10|22|2001
Key to happiness: 2% in the bank and 3.2% in the tank
The markets were quiet overnight. Although Europe was slightly firmer, our futures showed little change. After opening slightly to the negative side, the market began a rip-roaring rally that in the first couple of hours saw the Dow and the S&P up about 0.5% and the Nasdaq up about 1.5%. The size of the move from the opening blow was larger than those gains. For instance, in the space of 30 minutes, the Nasdaq 100 futures rallied about 45 points, or just a little better than 3%. So much for the early-going minutiae.
What It Takes To Get A Buzz After the early-morning surge, the market flopped and chopped for a while. Then we had a nasty sell-off as it was learned that a few postal workers from Washington D.C. had contracted the inhaled form of anthrax. But around midday, the market found its footing and turned around to grind steadily higher into the close. The prices that you see in the box scores were in essence the high for the day. Something to note in the speculation department: The biotech index was up north of 3% today. Also, both the bank stock index and the Sox reversed losses in the early going to have pretty substantial gains. But as I have mentioned many times in the past, a 5% gain in the Sox is nothing, a 7% to 8% gain is mild volatility, and 10% is what it takes to be construed as a wild day in that index. So, today was just business as usual.
Corporate Earnings Take A Powder A couple of big companies have managed to shrug off lowered guidance, and I'm sure that fact plus rosy stories from corporate chieftains have put a bid into the tape. I sort of surmised that last week's sell-off was a function of an anthrax scare and not any disillusionment about corporate earnings. So, the bulls would appear to have put on their worst-has-been-seen buying hats. All in all, it was a good day for speculation, and a continuation of the turnaround that we saw Friday morning. Maybe the bulls will use this "no news" period to try to party hearty. Who knows exactly what they'll be able to pull off, but we'll be watching.
Grab The Pooper Scooper, Yellow Dog On The Run Away from stocks, fixed income was slightly firmer, and the dollar was stronger both against the yen and the euro. The metals were weaker once again, with gold and silver down over 1% apiece. On the subject of metals and currencies, I took a quick look at the Commitments of Traders report, and it was less than friendly to the bulls. About a week and a half ago, in anticipation of this setback, I made some comments about a gold-buying opportunity coming up. I think we are rapidly approaching that point. Stay tuned.
Wait A Minute, I'm Going To 'Upheaval' My Lunch In the recommended reading department of yesterday's New York Times, Gretchen Morgenson wrote yet another fine piece called "Time to Look at Stock Options' Real Cost." (Registration required.) There is no shortage of absurdity in this area. For example, the Financial Executives Institute claims that adding the expense of stock options to company results would "throw off their bottom lines and cause an upheaval in the stock market." Gretchen made this wonderful point: "So there it is: The mantra of the bull-market-at-any-cost crowd. Telling the truth will cause upheaval in the stock market. Stock prices must be held aloft, even if by lies." This echoes the comments I made frequently during the mania. Whether you looked at the public or Wall Street, the sentiment was this: It's okay to lie. In fact we love it. Just don't get caught.
Fermented Dementia In the denial department, today's Wall Street Journal has a worthwhile article by Ken Brown called "This Pep Rally Features Cider, Stock Cheering." (Registration required for a two-week trial.) The best quote is from an attendee at a meeting of investors in New York State: "I've talked to some folks who absolutely refuse to look at their third-quarter statements," he says, as if not looking at the statements will make the losses go away. In the it's-my-God-given-right-to-make-double-digit-returns department, he opined, "What are you going to do, sell and put the money in the bank and get 2%?" Well, sometimes the idea is, don't lose any money. That way, when stock prices get more reasonable, you'll have all your money to buy them. You'll be able to make an investment in which the risk/reward equation is in your favor, as opposed to trying to buy $1 bills for $3 and selling them for $3.50. This is the case of "what investors are doing today."
Avert Your Eyes, Or Your Portfolio Will Turn Into A Pillar Of Salt Moving to another multi-syllabic department -- the if-it-wasn't-so-sad-it-would-be-hilarious department -- recall the six-page bullish ad from Merrill Lynch that has been making the rounds of several papers over the last week or so. Ladies and gentlemen, do you find it the least bit disingenuous that this emanates from the same people who just offered early retirement to 65,000 employees? Once again, we have a corporation saying, "Yeah, good news is right around the corner, and by the way, we are going to fire a chunk of our employees." You'd think that after all we have been through in the last 18 months, people would behave in a more sober way when it comes to their hard-earned money, but so far that does not seem to be the case.
Trip Over The Number Lastly, regarding Wall Street's sophomoric game called "Beat the Number," the proprietor of the Capital Stool web site e-mailed me a hilarious post called "Grocery Chain Beats Earnings." (Visit the site if you're in the mood for a belly laugh.) "I own a small grocery store and managed to beat my projected earnings by a penny the other day. It's been a little slow and lonely lately, but things are looking up. Over the past few months, a couple of people came in and looked around, but they left without buying anything. For the last couple of weeks, no one has come into the store at all. So, the cancellations have definitely stopped. Inventory is way down, too, mostly because I've been eating it or it's rotted. That's good. Even though all the people seem to have left town, I think they will probably discover gold or something like that around here soon, and that will draw the patrons in big time. But the best thing happened last night. I was feeling a little down, so I grabbed the last two bottles of Thunderbird off the shelf and downed them to the last drop. Then, leaving the store, I tripped over a box, ripped my pants, fell down and smacked my head on the floor. Later, when I was able to open one eye, there it was on the floor right next to me -- a penny. So there I was, a full penny over expectations." So that's how they do it. |
