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The Market Rap
William A. Fleckenstein
06:00 PM 11|19|2001
Company and dead fish start to stink after 3 days and 30 buy recommendations.
[Editor's note: Bill will be a guest of Neil Cavuto on the Fox network this coming Wednesday at about 4:30 to 5:00 p.m. Eastern time. The Rap will not be published on Friday.]
Sunday night, the global markets and our futures were firm as sustained good news on the war front whetted people's appetite for stocks. When the casino opened for business, we had a mini blast-off that within half an hour saw the Dow and the S&P up just about a percent, and the Nasdaq up about a percent and a half. Interestingly, two objects of speculative lust sat out the early-morning revelry -- the biotech stocks, which were up only fractionally, and the semiconductor stocks. The winner today was the bank stock index, up a percent and a half in the early going. Also, there appeared to be a flight to quantity, with the bigger market caps generating a larger volume of drool than some of the more mid-sized companies. Just another day at the track, with people continuing to believe that prosperity is right around the corner.
The Rally's Dirge Starts With Binge And Purge After the early-morning highs, the market flopped and chopped for about an hour. Then we spent the next couple of hours slowly sinking to the lows of the day, which were hit midday. At this juncture, the indices were all fractionally positive. But that was it for going down. The market turned around to grind higher, closing essentially at the new highs that you see in the box scores. The bank stock index was up 2%. The biotech index caught fire, up about 4%. The Sox was nowhere. I thought I detected a fair amount of short covering, in addition to the previously described flight to quantity. By my reckoning, the short covering was probably in some software names such as Check Point (CHKP), heretofore-popular short Qualcomm (QCOM), and Veritas (VRTS). And then some single-digit midgets have really come to life, with no better example than Redback Networks (RBAK), which was up 10% today to $5.79, after having been a buck and change in September. There are an awful lot of stocks now that are up 100% from the lows, and many of the speculative variety that are up multiples of that. So, speculation is getting more ribald by the day, which is also part and parcel of the late stages of the rally.
Away from stocks, the metals were weaker again. Fixed income caught a bounce. Oil, after being down over a dollar to $17.00-ish, firmed up somewhat to close at $17.72, down $0.31. The dollar was up against both the yen and the euro, as both of those continued to be under pressure.
The Vermin In The Pin-Striped Suit Turning to the news, in yesterday's New York Times Gretchen Morgenson had a rather interesting story called "Telecom's Pied Piper: Whose Side Was He On?" (Registration required.) Though her subject is one individual, Salomon Smith Barney's big-time telecommunications analyst Jack Grubman, it is a variation on the theme of worthless "research" done by a huge chunk, if not all, of the people in the analytical community. Her story does a fine job of taking the reader through the inherent conflicts that developed in the late-nineties mania. Possibly the single most arrogant quote was one that Mr. Grubman made to Business Week in May of 2000, in response to a question about how an analyst can give objective investment advice while simultaneously working with investment bankers: "Objective? The other word for it is uninformed."
Journal Deploys Forces To Capture Bull In Kabul Cave Speaking of uninformed, in today's Wall Street Journal, there is an absolutely idiotic story entitled "Bull Market Nears, But Many Won't Believe It," by Suzanne McGee. (Registration required for a two-week trial.) Not that the whole article was so brainless, but the first paragraph was a continuation of the complete drivel that I would expect to see on Bubblevision, not in the Journal (on the other hand, this is the publication that saw fit to capitalize the n and e in "new economy"): "The Dow Jones Industrial Average, the stock market's blue-chip bellwether, is only 16 points away from a 20% gain off its recent low point," and I want to emphasize, "an event that would technically push the index into bull market territory." This is complete and utter nonsense. The 20% figure being bandied about to technically signify a bull market or bear market is pure crap. As I say, this is the kind of stuff that one might expect to see on Bubblevision, but I wouldn't think any serious news organization could actually repeat it. There is no set number that defines bull market or bear market, and it's just an example of what often passes for knowledge in the financial markets. The sooner the financial press stops running stuff like this, the sooner it might begin serving the public by providing useful information.
Opportunity Where The Sun Don't Shine That said, there was an interesting article in today's New York Times called "Themes of Gloom and Doom Fill Japanese Bookstores." Writer Ken Belson lists a couple of interesting titles: "The Day the Yen Disappears," "2003: Japan's National Bankruptcy," and "The Depression of 2002." Now, if people really would like to understand what a bottom looks like, this is the kind of stuff that goes along with the kind of bottom one sees after a bubble. As I'm sure most people know, Japan's bubble burst over 11 years ago, and now people have totally given up, figuring they're dealing with a complete basket case. To me, that's a much more interesting place to do research for stock buying than is America.
How To Know When The Right One Comes Along I continue to think that a bull market will occur in Japan years before we have one here. I have been watching things closely there for the past six months, looking for a chance to finally pull the trigger and get long. I haven't done so yet, and I'm not sure exactly when I will, but the psychology is certainly right, and away from the stock indices, there are many cheap stocks to be found, from what I can determine. In any case, whether people are interested in Japan or not, I think this is a good example of the kind of give-up that people should expect to see near a post-mania bottom, not the giddiness that we are seeing these days. So, buyers beware. |
