Tech Running Out of Rabbits in Hat
By Bill Fleckenstein
Special to TheStreet.com
04/25/2002 11:53 AM EDT
Editor's note: Bill Fleckenstein's column runs exclusively on RealMoney.com; this is a special free look at his column. For a free trial subscription to RealMoney.com, click here. This article was originally published April 24 on RealMoney.
Low-Sodium Seasoning: Obviously in the last few days, the big averages and the techs have been under pressure, while there have been pockets of strength in the mid-cap arena and in the housing stocks. On the job front, the news also doesn't look so cheery, and of course the seasonal adjustments have stopped working their magic: Witness today's report that durable goods and home sales were weaker than expected.
Regarding the latter, it is with a smile on my face that I point out the gap in expectations -- 878,000 vs. the anticipated 883,000. Five thousand homes in an estimate like this should be taken with a grain of salt. And, in fact, the revision was higher. (That said, my expectation continues to be that the best news on the economy has been seen. Momentary blips notwithstanding, I anticipate the economic fantasy to fizzle going forward.)
Stay-Bull Market: Nevertheless, after an initial attempt at a rally, the market sold off on that news. It then rallied again to near its best levels, such that a couple of hours into the day, the Nasdaq was up 0.5%, and the S&P and Dow were up about the same. The Nasdaq 100 was not really making too much progress, considering it had been up about 1% overnight. In any case, that was the picture in the early going today, with the market apparently trying to stabilize after having been roughed up over the last couple of days.
Vanquished Triumvirate: After the early morning selloff and rally, the market spent the middle part of the day trying to go higher, with one additional attempt on the back of moderately encouraging news from the Fed's beige book. But when that rally failed to stick, the market basically fell out of bed and spent the rest of the day sliding sloppily to the lows that you see set in the box scores.
On what turned out to be just an ugly day across the board, the SOX led the slide, spearheaded by KLA-Tencor (KLAC:Nasdaq - news - commentary - research - analysis), down 5%; Micron Technology (MU:NYSE - news - commentary - research - analysis), down about 7%; Maxim Integrated Products (MXIM:Nasdaq - news - commentary - research - analysis) , down 5%, etc. Cisco (CSCO:Nasdaq - news - commentary - research - analysis) was one of the few stocks to end green on the day. And Amazon (AMZN:Nasdaq - news - commentary - research - analysis) was up almost $3 on its "better" news, lest anybody think speculation never found its way to the tape today.
Brokerages Broken Down: Away from technology, the bank stock index wasn't under much pressure, but the brokerage stocks were again getting walloped, as today people decided that the issue of brokerage liability was again apparently a cause for concern. It's amazing that this thought surfaces only occasionally and then seems to be forgotten. Other than those two areas, it was kind of a mixed bag. Housing stocks barely budged, and the Dow was of course much stronger than the Nasdaq.
Tech De Rigueur Mortis: No matter what happens going forward from here, even if we do get a rip-roaring rally one of these days, it does seem that people are finally getting it into their heads that in terms of being an investor, there is nothing magical about technology, and these stocks still are supremely expensive. Before 2002 is over, I believe that the whole fantasy about tech stocks as the place to be will go up in flames.
Gold Quote Fit for Silver Compote: Away from stocks, the metals essentially were unchanged after having been higher. When I turned on Bubblevision for a moment this morning, I happened to notice that they now flash a gold quote. Whether that's good news or bad news, I don't know, but at least they have now become aware that there is life beyond the equity markets.
Chicken Right-Wings Flung Into Pigpen: Away from the metals, fixed income was pretty firm, with the 10-year up half a buck. The dollar was weaker against the yen and the euro. Most surprisingly, the euro continues to hang in there. The news of right-wing victories in the French elections (and the fact that this fellow Jean-Marie Le Pen appears to be quite an isolationist) probably would have rocked the euro in the past. The fact that it hasn't gone down therefore strikes me as somewhat interesting, and certainly not a bullish harbinger for the dollar.
Low-Barrier-to-Blarney Zone: Remove Shorts: Generally about this time every quarter, we enter the "no-news period," when fantasies can reign supreme. Though bad news has just delivered a one-two punch to the telecom sector, we are fast approaching the point in time when it has historically enjoyed a respite, and then those so inclined can make up whatever story they want about the state of corporate America. So, people need to be alert, in case that should start to develop. For instance, there have been many rumors about Cisco preannouncing. If that doesn't happen, then I would expect the nonevent to be spun into good news. After having been short Cisco, I have covered mine, for whatever that's worth. In fact, I covered a number of stocks today.
At-Large Anti-Fantasy Forces: But even if there's no bad news emanating from corporate America, or if it slows down to some degree, bad news elsewhere could affect the tape. Meanwhile, against the backdrop of the fading economic fantasy, stocks still are outlandishly expensive. So in the next couple of weeks -- when bulls like to stand tall, it will be interesting to see what they are able to pull off.
Fannie Mae Quiver: Though my travels have left me a bit behind the curve, I was pretty shocked to see Greenspan register awareness (in his Monday night speech) that the government-sponsored enterprises (GSEs), namely Freddie Mac (FRE:NYSE - news - commentary - research - analysis) and Fannie Mae (FNM:NYSE - news - commentary - research - analysis), have been allowed to grow into such monstrous, uncontrolled entities.
There's no doubt that abuses within those GSEs have aided and abetted the speculative activity in the housing market, the economy, and the stock market in general over the last few years. So, if the clueless population at the Fed is starting to catch on, perhaps this will pave the way for reining in Fannie Mae's activities.
Duly Disturbed Diagnostician: Obviously, somebody had to paint the picture for Al to figure out that it's potentially a problem, or else he wouldn't have made such a speech. Though Greenspan doesn't see a problem in housing, he opined, "We need to be careful not to allow subsidies to unduly disturb an efficient financial structure that has so clearly contributed to increased economic stability." Of course, as usual, he's wrong. The subsidies already have disturbed the financial structure. They have contributed zero to economic stability but have added oomph to the upside, which will increase the violence on the downside. In any event, if the GSEs are not allowed to do what they've been doing, or if they have to start growing at a slower rate, there will be large ramifications, and I will apprise readers of whatever information I can ferret out.
Botched SOX-Change Operation: Meanwhile, in the goofy theory department, I'd like to share a nugget from the people at ISI, Ed Hyman's shop, who this morning suggested that rather than pay attention to the Dow transports and the Dow industrials (which as people know constitute the Dow theory), we should replace those indices with the New Economy's SOX and Nasdaq. Well, ladies and gentlemen, after all that has transpired, I cannot believe how anybody with an IQ over 40 is still talking about things like the New Economy, and trying to come up with indicators to justify a specious concept. It just goes to show you the level of denial that still exists out there.
Read-Only: Lastly, I will not be able to respond to emails that do not absolutely require a response, because I am just hopelessly buried in back correspondence. But I do expect to read them all, and hopefully, I will get caught up some time this week.
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