Rally Charged With Impersonating the Bottom
By Bill Fleckenstein
Index Close Change
Dow 8,680.03 -31.85
S&P 500 902.78 +3.82
Nasdaq Composite 1344.19 +8.94
Nasdaq 100 980.36 +10.23
Russell 2000 400.91 +0.10
Semiconductor Index (SOX) 346.46 +9.63
Bank Index 743.26 +1.00
Amex Gold Bugs Index 109.24 +6.86
Dow Transports 2389.51 +8.56
Dow Utilities 235.58 +15.61
NYSE advance-decline +294 -1,792
Nikkei 225 10,003.72 +337.05
10-year Treasury Bond 4.58% +0.048
Exacerbate and Switched Statistic : The overnight markets are not really worth discussing, so we'll just skip to the action preopening, which saw our market under a little bit of pressure. Then the government released a disappointing consumer confidence number -- 97.1 vs. expectations of 101, and down from last month's 106 -- and that exacerbated the selloff. But once the news was digested, we had a straight-up move in the market that at least saw the futures green on the day. Then another selloff ensued.
Red Barn Razing : But when that decline was unable to take out the morning's lows, we saw a big rally in the next couple of hours that brought us to the highs of the day. The last hour saw a small pullback that set the prices you see in the box scores. But basically, the market finished not too far off its best level of the day. I could see nothing earth-shaking to note in the action, other than to say that semiconductors continued to lag, and housing stocks were red. Mostly, it looked like a lot of noise.
From Ingot-Besotted to Begotten Selling : Away from stocks, fixed income was a nonevent, while the euro was fractionally higher, as were the metals. That brings me to thoughts about why gold came in for such a beating in the selloff. I think a lot of people bought gold and gold stocks, reasoning that this would protect them from a decline in the stock market.
On many days during the last few months, you could see gold trading inversely with equities, almost tick for tick. I don't believe that is necessarily the right reason to buy gold, but basically I think everyone who did was flushed out of the trade when gold and gold stocks started to sell off. From there, selling begot selling, and a lot of the hot money was chased out.
Take Me Home to Auntie M3 : I don't believe the real reason to own gold is as an "antistock trade." What makes ownership compelling is that gold is an anticurrency, anticentral banker, anti-Greenspan trade. I think that when people recognize gold for the currency that it is (or, said differently, for its inherent store of value), when they seek to own a part of it because they can't trust the government, the central banks, and these pieces of confetti called currencies, then gold will see a much more powerful bid -- and the next leg of the gold market will be far more significant and enduring than what occurred in its recent run.
Campaigning for Goldwater: Today, we bought a bit more (though our purchases so far have been small) gold for my fund, and I would suggest that people without any exposure to gold consider some way of getting their toe in the water. That said, one has to pace one's purchasing, because what's going to happen is never exactly knowable. As for whether to buy bullion, or the Central Fund of Canada CEF , or a mining stock like Newmont Mining NEM , one has to determine one's individual risk preference. Along those lines, I cannot respond to emails asking me which route to take.
Road Kill : What I would like to respond to now, however, are some comments made by Alan Greenspan during his congressional testimony, while I was away: "It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed had grown so enormously." That's from the International Herald Tribune , which I have been carrying around for about 10 days. As regular readers know, I've reprised nearly all of Greenspan's comments in the last six years, as I find him to be the most incompetent and irresponsible central banker in the history of the world.
The Avenue to Hell Is Paved with Bailouts : But I think that this quote, while certainly not the dumbest, is perhaps the most arrogant. If the Fed chairman wants to talk about all the "avenues" within corporate America, Wall Street, etc., maybe he should consider his role as chief architect -- through repeated bailouts, and by leading people to think that in the last years of mania, there was a Greenspan "put" to solve all future problems.
Of course, he was so clueless as to state publicly that he didn't know what a bubble would look like. He made comments about how the Fed's approach to problems would be asymmetrical, i.e., that it wouldn't really stand in the way on the upside, but you could be sure if bad things happened, that it would move heaven and earth to solve them. He even used productivity gains to rationalize what was going on.
Featherweight Father of Our Mania : In my opinion, his incompetence, arrogance, and ignorance of history are what brought us the mania, which in turn allowed all the unpleasant human weaknesses now dominating the news to run amok for so long. Greenspan has never pre-empted a problem during his entire tenure as Fed chairman. All he has done is to precipitate them and then race in with bailouts, the destructive byproduct of his inability to stop a problem from getting out of hand, because he doesn't understand much about anything, near as I can tell.
Clarity-Fed Operating Profits : But if Greenspan remains clueless, insight need not be lost on others. And that is why I have frequently described the source of our problem as the Fed and the bubble that it engendered. Understanding provides a framework for people to operate within, so as to make sense of why the economy is going to do what it's going to do, and why the stock market has been doing what it's been doing. These have been my views for a long time, and most of the action in the last couple of years has made some kind of sense to me.
Citizen Pain : Perennial bulls, for whom understanding has taken a back seat to denial about the Fed-induced bubble, seem only to have a stock, oft-heard response: "Well, it's the bottom now." Again? What I think we are experiencing in the market is a rally. We've had a lot of rallies in this bear market. I don't know whether this rally is going to last two more hours or six weeks, but I feel it's just going to be a rally, and then we're going to go back to going down. And on the way down, people in search of an explanation can look no further than the man and the institution ultimately responsible for everybody's pain, Alan Greenspan and the Fed. (This is not to say that individuals bear no responsibility for their own actions, because they do. But we should expect more from the heads of central banks.)
Root Vegetables Now Served in the Green Room : Along those same lines, I would like to make a final point: It seems as if nearly every newspaper and TV commentator on the planet seems to think that "up" is good for stocks and "down" is bad. While I will grant you that down is bad - - it's no fun for anyone -- up is not necessarily good. People shouldn't be wedded to that bias, because too much "up" can be terrible, which is the lesson from the end of the millennium.
We had too much "up," irresponsibly "up," and in their preoccupation with cheering it, most people failed to recognize that horrible bad times, capable of lasting a decade, can be the devastating consequence. So, why don't the "news organizations" strip the bias out and report what happened without having a rooting interest. Or, let them label it editorial content, like this column. |
