Fleck's Market Rap...10/10/01
New issue from Bill Fleckenstein:
The Market Rap
William A. Fleckenstein
05:00 PM 10|10|2001
From sea to shining sea, the powers that be
Overnight, the Asian markets were slightly weaker. Europe was trying to do better. Pre-opening, our futures were under pressure as a dead-fish trimming of IBM numbers and further weakness in Microsoft (MSFT) weighed on the tape. Last night, corporate news from Lam Research (LRCX), a member of the once-darling semiconductor equipment sector, propped up the equipment stocks initially, but that fell apart this morning when a dead fish downgraded the group. Also this morning, Motorola (MOT) was the talk of the town as it allowed that a bottom kind of maybe, almost sort of, just might possibly be here. Of course, it's yet another management team that has been woefully optimistic the whole way. But during the conference call, that stock did trade up when the company made the functional equivalent of the comment I just described.
Attention, About-Face! In any case, despite some of the big news events, it's not clear what caused the turnaround that followed a weak opening and a bit of a sell-off in the first half hour. Then the market exploded higher. We had a straight-up move of about 1.5% off the lows, as measured by the S&P, which had the market up about 1%. The Dow was just behind, and the Nasdaq was just ahead of those percentage gains. In the early going, the leader to the upside was the Sox, up about 3%. The bank stocks chipped in for 1%.
Bio-Terribly Priced Likewise, there was lots of speculation in a lot of little names. Yesterday, I started to notice this trend in biotech. I would just point out that should "the powers that be" succeed in making this rally last a little while, that would be an area where we could see some sensational speculative moves to the upside. Vis-à-vis few fundamentals and much imagination, this sector and the previously white-hot Internet sector dangle from the same family tree. Relative to the Internet sector a couple years back, biotech is a real business with some interesting characteristics. I am not advocating that anyone become involved. For the most part, I would imagine the stocks are stupendously expensive. I am just suggesting that it will be an area to keep our eye on from the standpoint of gauging speculation.
What Does Corporate America Do? (Hint: Remove the 'Onacci' From 'Fibonacci') The early-morning turnaround was just a harbinger of the afternoon bull-fest. The market was basically ramped wire to wire, from basically opening on the low tick to closing on the high tick. As you can see from the box scores, it was a pretty rousing day. The beleaguered Sox was once again the winner to the upside, gaining a stunning 7%. It's remarkable to go back and look at all the days when this particular index has traded up or down in excess of 5%. My standard joke is that the bid-ask spread on the Sox index is about 10%. In any case, it will be interesting to see if it can get legs from here. My sense is that if corporate America chooses to fib, people will be in a believing mood.
The Easter Bunny Has Diaper Rash You can just smell the need for people to want to believe that the bottom has been seen yet again, and that good times are right around the corner. If they're in a mood to believe that, and if we can get some good news on the war front -- which I believe we can -- then you can see how people can get themselves pretty euphoric about a little rally, at least in the short run. I am not saying that this will happen, but it seems to me that the stage is certainly set. Of course, it won't change anything and will just create some better selling opportunities. But, this is a topic for another day. So, all in all, a fine time was had by the bulls. This week is shaping up to look better than it started out on Sunday night, when stocks were unable to rally on the war news.
How Much Is That Yellow Doggie In The Window Of Opportunity? Away from stocks, fixed income was flat. The dollar was higher against the yen and the euro. Oil was pretty much a nonevent, up a nickel. Once again, the metals were weaker (with silver down 3% and gold down a little over 1%) as Johnny-Come-Lately longs to the futures market are being shaken out. With respect to both silver and gold, this potentially sets up a wonderful buying opportunity in the not-too-distant future. On a handful of occasions over the past six months, I have been pretty constructive on the metals. It seems that an investment demand is showing up at the margin. We are getting down to the tail end of central bank selling, and the supply and demand situation is getting more bullish. For whatever it's worth, I am looking for another chance to add to positions in metals somewhere over the next few weeks.
Synchronized Folly Yesterday, I commented on what I surmised "the powers that be" were up to. Today, Colin was pondering this very subject: "Brokers are working overtime to think up reasons for people to buy stocks. State pension funds are buying stocks. Domestic institutions are redeeming large amounts from fixed income managers to put into stocks. The U.S. government is encouraging and facilitating stock buying by corporations. We are witnessing a globally coordinated effort to use stock markets as the primary tool of economic policy. Monetary and fiscal stimulus will increase globally, i.e., massive amounts of money will be printed and spent. These efforts will succeed for a period of time, but create conditions for a worse global economic and financial crisis than the one that would result from allowing markets to normalize now."
Playing Bull Patty-Cake Now for Colin's thoughts on the speculation that we saw this morning: "The Internet services sector is today's best performer so far. People have clearly decided it is time to buy the biggest pieces of crap they can find, because these will rally the most. There is a high and rising level of confidence that global economic cooperation/rhetoric/manipulation will be as effective in pushing up the risk asset markets as it was in 1998. We are entering the 'political-will-dominates-economic-reality' phase. Yes, for a while." |
