'Dow 36,000' Fans Caught Reading Joy of Cryonics
By Bill Fleckenstein
Data Points to Southern Sunrise: Yesterday's late-day ramp job didn't do much to inspire the rest of the world, nor did this morning's economic data. Construction spending was supposed to be up fractionally, but it was down a couple percent. The ISM manufacturing survey, which was expected to support a reading of about 55 compared with last month's 56.2, came in at 50.5, a measure just above recessionary levels.
Index Close Change
Dow 8,506.62 -229.97
S&P 500 884.66 -26.96
Nasdaq Composite 1280.16 -48.10
Nasdaq 100 913.68 -48.43
Russell 2000 389.21 -3.21
Semiconductor Index (SOX) 311.88 -19.06
Bank Index 735.06 -21.44
Amex Gold Bugs Index 109.24 +2.05
Dow Transports 2308.26 -61.79
Dow Utilities 230.61 -6.59
NYSE advance-decline -693 -987
Nikkei 225 9793.51 -84.43
10-year Treasury Bond 4.40% -0.064
Presoaked in Saltwater Skepticism: People can see from yesterday's GPD revisions why I treat a lot of the economic data with a grain of salt -- witness the downshift in two of last year's quarters from positive to negative GDP growth. (For a more in-depth dissection, read "New Report Shows U.S. Economy Slowed Significantly for Quarter" in today's New York Times .) So, that should be a warning for people not to read too much into the economic data reports. And now it should be clear that numbers situated to the right side of the decimal point achieve legitimacy solely by demonstrating the sense of humor in those who construct the data.
Exit the Extemporization: At some point, I think people will realize that the only thing more squirrelly than corporate data are government data, especially when it comes to how the deficit is calculated. In any case, before this bear market is over, maybe even government numbers will be more accurately calculated. (A guy can hope, can't he?)
Crooning Tuna: Turning back to the action, the market opened with a bit of a thud, and just like yesterday, we had a run-up into the 10 o'clock data, as if people thought good news was a given. But with the aforementioned disappointing numbers, the market was mainly smacked down 1.5% to 2%, depending on what index you looked at. For a change, tech was initially strong, most notably semiconductors, as one of the leading dead fish was heard waxing bullish on some of these stocks. It's no small irony that his name rhymes with "denial." In any case, after an hour, the greenness in SOX Land turned red across the board.
SOX Fulfills Roughage Requirement: After plumbing the lows, the market made a halfhearted attempt at a bounce for the next few hours, but when that fizzled, the market sold off again, such that we basically closed on the lows of the day, which are the prices you see in the box scores. The downside leader was none other than the SOX, down 6%, though the bank stock index and biotechs were also roughed up pretty well, down 3% and some 4% respectively. Those were the standouts.
Music for Sell-Tick Harp: I think it's worth mentioning that the SOX was never able to surmount its closing price of a week ago Wednesday, when the S&P and the Dow turned around. And now, the SOX has basically made a new closing low for the move, obviously a sign of serious weakness. There's no point in bothering to reiterate the case for why semiconductor stocks are in trouble, as I have harped on that score many times over the course of the year. However, I will say that between now and the end of the year, I would not be surprised to see most of these stocks cut in half yet again. On a housekeeping note, in the disclosure section of yesterday's column, I failed to mention that I was short and am short KLA-Tencor KLAC .
Golden Buys: Away from stocks, fixed income had a small bid again. Gold and silver, after initially having being under a fair amount of pressure, rallied back to close mixed. Gold was up small, silver down small. Today I boughtsome silver and gold. I think that this area of $300, plus or minus, is going to be about as low as gold gets. Somewhere, gold is going up. Exactly when and from where, I do not know. But this is the opportunity for people who did not have a position to get one started. As always, the pace of one's buying is the most difficult thing to determine correctly, and I cannot help with that, regrettably, as I don't know the answer.
Goldman Guise: Turning to the they-just-don't-seem-to-get-it department, people probably saw the article that Gretchen Morgenson of the New York Times wrote this past weekend about the "coincidence" of Goldman Sachs GS turning up as an outsized buyer of semiconductor HOLDRs (AMEX: SMH) calls right before an upgrade. Yesterday I noted that the market appeared to close on a giant markup, and I received a confirmation of that fact from someone who I think ought to know about those things.
Myopic Op-Ed: As a third example, today in The Wall Street Journal , James Glassman reprised his Dow 36,000 prediction. In this piece, for which "They Have No Shame" would have worked as a subtitle, he basically tried to say that his crystal ball was accurate, and that somewhere down a rather unspecified road, the Dow would be fully valued at 36,000. Well, you know, some day the market will be at 36,000. It might be 100 years from now. But to try to fall back on the spurious notion that 36,000 is what it would take to make it fully valued is unremittingly clueless, because anything above 6,000 makes the Dow more than fully valued, in my opinion, and anything over 10,318 certainly does.
Glassman Abstains from Truth Theorem ... : In any event, he went on to reprise how well stocks had done in the long term, without ever bothering to mention that about half of the long-term rate of return from stocks came via dividends. That was something noticeably absent from the point in time when he made his calculation, September 1999, when the Dow stood at 10,318. So the chance of him being right was always about zero, from an intellectual standpoint. Obviously, as enough time goes by, the Dow will be far past 36,000, but that doesn't help anyone.
... And Guzzles 100% Proof Positive: Further into the piece, and showing an extraordinary ignorance of the process under way, he says, "What's remarkable is that, in spite of this, price/earnings ratios have remained higher than historic averages -- exactly what we expected." (Well, I would argue this is proof positive that we're not done correcting the excesses yet.) And from there, his argument devolves into pure nonsense: "Unfortunately, many politicians and journalists have a vested interest in spreading fear and chasing people out of stocks -- even though stock investing is the most reliable route to accumulating wealth."
Dismantle, Dismount: That is the most childish, inane argument I have ever heard, and it's not easy to remain calm when reading it. Basically, what he is trying to say is, you know, were it not for all these "bad"-intentioned people, perhaps stocks would be doing better. It seems to me that most of the media and the politicians had the pom-poms out when stocks were going up. In any case, this is a good example of someone starting out with a losing premise and defending it all the way down. And with that, I'll get off my soapbox. |
