December 23, 1998
Market Rap with Bill Fleckenstein
Internet stock moves beyond breathtaking
IndexCloseChangeDow9202.03+157.57S&P 5001228.54+24.97Nasdaq Composite2172.54+51.56Nasdaq 1001818.96+51.14Russell 2000404.79+4.55Morgan Stanley Index866.78+24.46Sox Index349.49+5.23Bank Index810.88+13.05XAU Gold & Silver Index63.23+1.98Dow Transports3054.59+18.43Dow Utilities315.05+2.2430-year Treasury bond5.18%-21/32 It is not possible to accurately describe what has taken place in the stock market in the last week. My vantage point away from the office and not watching every tick gives me a certain perspective, although that doesn't help make sense of anything.
It is truly staggering to think that an analyst can utter the words, "I'm raising my price target" to some completely ridiculous price (like $200 in the case of Micron, as Danny Niles did last week), and set some crazy bidding war in motion for whatever security is mentioned. This started late last week with Amazon and now is being carried through to a group of other names.
Obviously, the insanity and success of the speculation that has taken place in the Internet stocks has emboldened speculators to try virtually the same tactics in any area they pick, but they have more or less concentrated on technology. The movement in the price of Internet stocks is beyond breathtaking. As a practical matter, all the movements we've seen here lately are beyond breathtaking.
No party for bonds... It is interesting to see that at the same time this party is taking place, the bond market isn't cooperating. Obviously JGBs (Japanese government bonds) have been smashed, trading from about 80 basis points a couple of weeks ago up to about 190 yield the other night. And our bond market doesn't go up any more. In fact, some of the yields are back to some of the higher levels we've seen recently, although in an absolute sense, not all that high.
Proof positive: PC sales poor... It would appear that crystal clear information is coming forth that PC sales are dismal this quarter. By that I mean the revelations by Ingram Micro (IM) and InaCom (ICO), the former being the largest PC distributor in the world, with revenues of about $22 billion, and the latter the biggest corporate reseller, with revenues of $5-6 billion. The comments these folks made are proof positive that things are poor in the PC world. Ingram Micro's growth rate was less than half of what it's been for virtually every quarter for the last four years. InaCom, meanwhile, missed its earnings assessments by close to 40 percent.
Live stock quote (Dec 23 closing prices) INGRAM MICRO INC CL A IM33 15/16-3 1/16 INACOM CORP ICO15 3/8-3 3/4 For more details on these stocks and more, go to Company Research. That news, following on the heels of what Micron Electronics, the number-three direct PC vendor, had to say a couple of nights ago, paints a clear picture for anyone willing to look at what's happening. PC sales aren't that great and we've got the most massive overbuild in history going on, and that will all become apparent in the next 90 days. I find it somewhat ironic that on a day such as this, Tom Kurlak winds up throwing in the towel and recommending Intel. Obviously, the pressure just got too great, but it is sadly ironic that he is forced to capitulate when we have black-and-white information about the status of the PC market.
Mindless mayhem... There's nothing intelligent to observe about the process. It is mindless mayhem. The rally we've had so far this year off the October lows is roughly twice as large as the Tokyo stock market had in its last rally in late 1989. That market off its October lows was up about 13 percent; we're up about 25 percent. That sterling shrine of value, the Nasdaq 100, is up over 80 percent on the year. Speculation reigns supreme and shows no sign of waning at the moment. But the market is at levels that - once this ends - most likely we will never again see in our lifetime.
The stock market is completely out of control. There is a growing sense of alarm from outside observers around the world who recognize we have a bubble. Meanwhile, those people in the bubble don't seem to care. And I cannot help but be struck by the fact that here we're seeing the Japanese just flailing away, trying to get out from the underneath the problems that their bubble of 10 years ago created, and we are partying on as though nothing bad ever could happen to us. Obviously, nothing could be further from the truth because when this melee ends, it will be the biggest disaster since the '30s. But when it ends obviously is not knowable. Every time it looks like we have a reversal, it turns out that three days later we go on to higher highs, and have yet another one. The market is in total, untethered melt-up mode.
Fed admits bubble trouble... The FOMC came out today and released the minutes of its most recent deliberations. It would appear that the Fed recognizes we have a bubble. When it eased, the Fed was more concerned about stressing the system than precipitating the bubble. Reading between the lines, now it is more concerned about the bubble than placing stress on the system. In no uncertain terms, the FOMC said it was not going to ease any more unless the economy got very weak. So the speculators are going to have to party on without any more easy money, in the face of deteriorating corporate earnings and a slowing economy.
Obviously the Fed now wants to walk the fine line between keeping things together and not fomenting the bubble. It's not going to be possible to do that, because either the bubble gets bigger or the thing collapses - that's how bubbles end. And the vast majority of today's speculators, who feel they've conquered the stock market and it's so easy, unfortunately are going to lose enormous sums of money.
Bears like myself have been wrong about the timing of the bubble's end. It's by definition an irrational process and trying to guess when it can end is next to impossible. Sometimes you think you see signs and it turns out not to be the case. But that does not change the fact that it is a bubble, it will end in a disaster and enormous sums of money will be lost before this is over. So conservative folks should just say thanks, leave the party and don't look back. Because when this thing does break, it will be the most hellacious thing that folks ever will have witnessed.
I'v |
