Bill Fleckenstein's Market Wrap 06:00 PM 12|06|2001
It's Intel -- It's Swell
The rest of the world was more or less subdued last night, which is somewhat surprising, given the epic rally that we saw. Taiwan was the standout winner, up nearly 6%. Europe was higher in the early going and then kind of fizzled. Our stock index futures were sort of stuck in neutral. In the early going, there wasn't much to report, other than some flopping and chopping that occurred in a rather wide range but without much net change in the indices. After yesterday's blastoff, the mighty, mighty Sox was down a couple percent. Today the baton was picked up by the bank stock index, which was ahead by a percent. For anyone looking at the tape in the early going today, it was as if yesterday's epic explosion to the upside never took place.
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Bulls Line Their Market Bottoms In Denim After our early-morning flop and chop, we had one surge to the upside that fell apart, and then we traversed back down to the day's lows, from where we bounced to close not so far from where we opened. Basically, today was kind of a quiet day on decent volume, although down a fair bit from yesterday. The prices you see in the box scores were never much different during the course of the day. There is not much point in reprising who did what to whom, other than to say that a couple of companies announced bad news and then saw their stocks rise. For instance, National Semiconductor slightly lowered guidance for next quarter, but it was up a little better than 5% anyway. Gap Stores also rallied after announcing that its November sales were worse than expected, and its losses would be wider than expected. So, today was another day where bad news didn't matter.
Myopic Mantra Tonight we'll get the future's-so-bright-we-have-to-wear-shades story from Intel. It's pretty amazing how Intel's revenues and earnings have collapsed this year, along with PC sales, and yet the stock is up on the year and sports a valuation of roughly 10 times revenues. Oh, yeah, that's right, I forgot. Everything is going to get better next year. I keep forgetting that. Let's just see if what gets built gets sold. My expectation is that Intel will face a black hole in Q1.
Away from stocks, fixed income was down again. The metals were a little higher. The euro was up a bit and the yen was down against the dollar.
Everybody Into The Bullpen Well, the rally we have had since the September lows has finally swung sentiment around for real. Last week, the American Association of Individual Investors reported that bullishness is up around 70%. By my reckoning, the percentage was only higher, briefly, in the first quarter of 2000 -- not exactly a great time to be buying stocks unless you only owned them for a short space of time, as measured in days. Yesterday, Investors Intelligence released its poll, showing that the bears were down to 23%. This is almost a five-year low, and it could be a 10-year low for all I know (the data I saw were only for five years). So, sentiment has come a long way since the fear that was engendered in September, and is in fact now getting quite lopsided. By the way, for all "new-era" defenders on the heavy end of the boat (read Larry Kudlow), please note that today, the productivity numbers for Q3 came in at 1.5%, not the 2% everybody was looking for, and down from 2.7%.
No 'Rational' In 'Rationalization' In any case, the market is slowly but surely building in the expectation of another epic boom. We will not get another boom, in my opinion. I don't think we'll see much positive news from an economic standpoint, though quite possibly the fourth quarter will be better, thanks to all the incentives, etc. It would not be impossible to see a fourth quarter of modestly decent numbers that people can try to convince themselves signify some sort of major turn at hand. That said, I think Q1 will be a veritable black hole in the economy.
Unreliable Informants And if you craned your neck down one in search of decent fundamentals, the effort would be fruitless, because fundamentals stink, even if they are not getting rapidly worse. I think that the expectations of dramatic improvement out there in 2002 will be met with disappointment. But with only a few weeks left to go in the year and people wanting to party, who knows what they may choose to do. All I know is that the same people who never saw the recession coming and also were wringing their hands about the world irrevocably changing after the 9/11 attacks are now certain that we have a recovery at hand. And, only now are they belatedly recognizing the fact that we will crush the terrorists, which was my view from the very beginning. That is just by way of saying that people who are leading the charge that everything is going to be wonderful aren't necessarily the best company, but that doesn't mean they can't be right for a few weeks.
Put In My Xmas Stocking Somewhere in the next two days to two months will be a splendid opportunity, I think, to purchase puts. In addition to the fact that sentiment is starting to get lopsided, the volatility indices are coming down, which is something I always look for. So far it hasn't quite seemed like the exact right moment, and obviously the right moment is precisely when it looks like the market can't possibly go down. I don't know if we're there yet. These subjective things are difficult to determine, so people who think they can get it to the exact day are kidding themselves. I sketch out this road map for those who care (I know some people do because I get e-mails on the subject), and also because a week from tomorrow will be the last Rap for this year, as I will be leaving town. So, I thought it an appropriate time to share my thoughts.
By the 12th Day Of Xmas, My True Love Had Still Not Given Me a PC Returning to fundamentals, today's news shows that once again, people were heading in the opposite direction. RadioShack announced that its comps were slightly down, and that stock was up 10%. What's important to point out is that the company said its PC traffic for last month (which had Windows XP included in it) was down 40%, and there was not much foot traffic in the PC area, although it did allow as how there was a modest bump from XP. It must have been pretty modest. Best Buy basically said the same thing, that PC's weren't so good. Radio Shack also opined that cell phone sales, after seeing a big surge in October, had softened a bit. So, it is pretty clear that even though consumers are on a buying binge thanks to 0% financing and all that good stuff, they're not exactly falling over themselves to buy PC's and cell phones. Memo to Wall Street bulls: Between cell phones and PC's, you're talking about 60% to 70% of all semiconductor consumption. I know, I know -- things are going to get better next year, so we don't have to worry about that.
Canadian Clarification Finally, I would like to be clear on one thing. Last week I mentioned Franco-Nevada warrants that expire in 11/03. There actually is another series that expires in 9/03, with quite a big difference between the two. I prefer the 11/03 series. After doing the math on the 9/03 series, what you find is that you will wind up owning a warrant entitling you to slightly better than 2.5 shares of Newmont at a little over $25, depending on where the Canadian dollar is. When one compares those to listed Newmont calls, one will see that these are dramatically cheaper, even though they have moved up slightly from where they were when I first mentioned them. I point this out because I've received a few e-mails on the subject, and I thought I would clarify which one I was referring to, for anyone who cares about that.
Note to new readers of the Rap: Mr. Fleckenstein often peppers his commentary with an inventive vocabulary known as "fleckisms." All is revealed in the "Insider's Guide to Fleckisms." Please be sure you've read "What Is the Market Rap" before sending e-mails to fleckrap@attbi.com. As highlighted in this outline, there are certain questions to which Mr. Fleckenstein is unable to respond.
Disclaimer: William Fleckenstein periodically publishes columns expressing his personal views regarding particular securities, securities market conditions, and personal and institutional investing in general, as well as related subjects.
Mr. Fleckenstein is the president of Fleckenstein Capital, which manages a hedge fund in Seattle, Washington. This fund regularly buys, sells, or holds securities that are the subject of his columns, or options with respect to those securities, and regularly holds positions in such securities or options as of the date those columns are published. In particular, this fund regularly holds short positions in such securities as of the date those columns are published. The views and opinions expressed in Mr. Fleckenstein's columns are not intended to constitute a description of the securities bought, sold, or held by the fund. The views and opinions expressed in Mr. Fleckenstein's columns are also not an indication of any intention to buy, sell, or hold any security on behalf of the fund, and investment decisions made on behalf of the fund may change at any time and for any reason. Mr. Fleckenstein's columns are not intended to constitute investment advice or a recommendation to buy, sell, or hold any security.
The views and opinions expressed in Mr. Fleckenstein's columns are his alone and not those of Grant's Investor. Grant's Investor disclaims all responsibility for Mr. Fleckenstein's views and opinions.
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