Awaiting Birth of Demand, KLA Knits Baby Booties
By Bill Fleckenstein
Index Close Change
Dow 8,736.59 +56.56
S&P 500 911.62 +8.84
Nasdaq Composite 1328.27 -15.92
Nasdaq 100 962.10 -18.26
Russell 2000 392.42 -8.49
Semiconductor Index (SOX) 330.94 -15.52
Bank Index 756.50 +13.24
Amex Gold Bugs Index 107.35 -1.89
Dow Transports 2370.05 -19.46
Dow Utilities 237.20 +1.62
NYSE advance-decline +113 -181
Nikkei 225 9877.94 -125.78
10-year Treasury Bond 4.47% -0.116
The Market Rap William A. Fleckenstein Headline: Positions: None
Honorable Mentioning : The only thing worth mentioning about the overnight markets is that Tokyo continues to flounder below 10,000. So, the rally that we saw there earlier this year has completely fallen apart, and even our recent moonshot rally has not helped Japan. This is something we should keep our eye on. As for the overnight action here preopening, the futures were attempting to rally, up about 1%, as measured by the S&P .
Petite Domestic Product : But the legs were cut out from that rally when, about an hour before the market opened, GDP was reported at 1.1%, vs. the 2.3% estimate, and the first-quarter number was revised down to 5% from 6.1%. Then, at 10 o'clock, the Chicago purchasing managers' index printed at 51.5, vs. expectations of 56, and against last month's 58.2. That the economic data continue to sour is a point I have been attempting to make people aware of for some time now, so I'm not going to rehash all the reasons. (Refer to my March 11 column for a general review, and to my Feb. 26 column for specifics on how hedonic and seasonal adjustments skewed the economic data to the upside early this year.)
Graphics Testimony : In any case, the Chicago number put an end to the market's attempt to rally off the open, such that within a couple of hours into the day, the Dow and the S&P were down a little better than 1%, and the Nasdaq was down a couple percentage points. The big loser in the early going was the SOX, down 4% on the back of disastrous results from Nvidia NVDA .
Batten Down the Hatches : The news from KLA-Tencor KLAC was lukewarm, though the company attempted to buff its number with the following sunny spin: "While the upturn will ultimately depend on macroeconomic factors outside our control, the semiconductor industry must ready itself to meet the inevitable wave of demand for products driving the world's microelectronics revolution." That amounts to a whole lot of arm waving, as there is plenty of excess capacity in the semiconductor industry. But KLA's results didn't seem to be as bad as some people feared, and in the spirit of wishful thinking, the stock was down less than $1 in the early going. After being somewhat lower over the course of the day, that's about where it closed.
Monthly 'Statements' Prompt Questions : The market was under a modest amount of pressure until, with about an hour to go, the S&P and the Dow staged about a 2% rally. (In the what-didn't-work department, housing stocks were noticeably weaker, as was the SOX, which closed down about 5%.) As to the cause of the rally, I could see no apparent reason, other than that this is the fundamentally correct time to buy stocks. It is, after all, the end of the month. Some day, when we are done with all the investigations, it would be nice to know whether these end-of-month and end-of-quarter ramp jobs were a figment of people's imagination, or actual occurrences. I'll leave it to the reader to decide.
Tape Painters Visit Coed Turpentine Whirlpool : In any case, I only bring up tape-painting, as mundane as it might sound, because it's just part of what all goes toward undermining the integrity of the market. The big scandals that are now unfolding did not spring out of a vacuum. They were market-related ethical issues, degraded an inch at a time. So, if we're going to try to clean things up, we ought to clean up everything, in my opinion.
Away from stocks, the euro and the metals were lower, with nothing meaningful to report. The bonds had a decent bounce of about three-quarters of a dollar, depending on the maturity.
Tied Knots 'n Tea Leaves : Turning to the news for a moment, it's interesting to note that IBM IBM decided to buy PricewaterhouseCoopers Consulting. What's significant here is the purchase price, about 0.7 of sales, and what that means for IBM's valuation going forward. When you add the company's market cap of $140 billion (including its debt of $20 billion), and then compare this to its revenue of about $80 billion, you can see that IBM trades at about 175% of sales. So, the price that it paid for PWC, I would argue, is probably a good indication of where IBM will ultimately be valued, which would put it in the $40s.
Setting the Easy Chair Straight : Now for a follow-up to yesterday's comments about Greenspan. It is not my intention to suggest that we would be problem-free were it not for our Fed chairman. That is not the case. History is replete with panics that occurred long before the Fed even came into existence. My friend Jim Grant spelled them out to me: 1819, 1837, 1857, 1873, 1893, and 1907. Those were all panics/depressions, and they all predated the Fed.
Full-Court Suppress : The point I am trying to make about Greenspan is that he has done his best to suppress the natural ebb and flow of the business cycle. In so doing, he has succeeded only in making whatever problems we might have experienced somewhere in the past much worse in the future. His efforts at postponing pain, virtually since he arrived at the Fed in 1987, now guarantee that we're in for a serious dose of economic trouble.
Know Thy Puppeteer : Through his unflagging zeal for meddling with the business cycle, he created a problem that was finally too big even for the Fed to manage, and now we must deal with the aftermath of that intervention. To repeat my thoughts from yesterday, I continue to believe that in order for people to understand how the economy and the market will play out going forward, they must grasp the implications of our Fed chairman's behavior. I hope this clarifies any confusion on the subject.
Those Pesky Tele(stock)marketers : Finally, I might point out that the hate-mail indicator rang a bell last night. It's almost always been useful as a sell signal, even if just a short-term one. Usually, I have a good idea of when the hate mail will start flowing, but last night's batch caught me a bit by surprise. So, for whatever it's worth, I wanted to pass this along. |
