Fleck: Can't Go Up Well, Can't Go Down Well
By Bill Fleckenstein
02/04/2003 17:42
Overnight, the European markets were rocked once again, down 3% plus or minus. Then, preopening, American International Group AIG dropped a bomb when it announced the need to up reserves. (That stock was down about 10% around the opening.) The net of this weighed on our stock index futures, which opened weaker and were immediately sold. Two hours into the day, the market was basically down 1.5% to 2%, depending on which index you looked at.
Tech Trash Dodges Downside: During the early-morning decline, as absurd as this may be, tech was the only port in the storm, with the SOX barely down. All I can do is scratch my head and ask how long before these tech stocks catch up on the downside. Once again, the most speculative, overpriced names that have the worst business characteristics were doing the best, while most of corporate America, and financials in particular, were being hit.
The early-morning lows were it for the day, and the market spent the rest of the time attempting to claw its way back. The box-score prices you see are about the best levels of the day, though only back to opening levels, and still ending red. As was the case in the early going, the SOX was the place to be, a bastion of strength. Today, once again, I didn't really see much of a theme other than the one I noted yesterday: Stocks don't go down well, and they don't go up well, though at the margin, they do seem to leak.
Tonight we hear from Cisco CSCO and tomorrow, of course, from Colin Powell. I can't imagine Cisco saying anything particularly bullish about the near-term future. I guess tomorrow, the market action may tell us something about the near term when we see how it responds to those two events.
Au Agnostics: Away from stocks, the dollar was under pressure, and fixed income was higher. Once again, the big news was the metals. Both silver and gold were up a couple percent on the day, but gold continues to be the leader, dragging silver along (although people who follow platinum and palladium will note the giant moves here as well). Gold has continued to go from strength to strength, but skeptics abound. It's such a classic symptom of a bull market that gold rises in a way to complicate owning it, while gold stocks lag the bullion itself. To repeat my thoughts from yesterday, I believe that the situation will resolve itself over time. Even though gold has managed to rally about 40% off its lows, I think it's still very early in the gold bull market. Just ask yourself, how many people do you know who actually own any physical gold?
Index Close Change
Dow 8013.01 -96.81
S&P 500 848.18 -12.14
Nasdaq Composite 1306.00 -17.79
Nasdaq 100 971.64 -15.43
Russell 2000 368.72 -1.53
Semiconductor Index (SOX) 269.73 -0.83
Bank Index 727.24 -14.03
Amex Gold Bugs Index 150.13 +7.75
Dow Transports 2145.38 -12.11
Dow Utilities 206.88 -2.85
NYSE advance-decline -344 -583
Nikkei 225 8484.90 -15.89
10-year Treasury Bond 3.93% -0.061
Sentiment Cemented by Complacency: How many people still think that the stock market is business as usual? To judge by a number of measures, a surprisingly large crowd of complacent bulls. That is the sentiment as seen in the volatility indices. Also, Investor's Intelligence reports over 50% bulls and just 26% bears. I am particularly stunned by the fact that mutual fund cash is at a record low. Amazingly, people still have so much confidence in the government, most especially in a Fed that has been so wrong for so long. Last week I shared some of Joanie's reaction to the Fed's post-FOMC communique. Today I'd like to pass along some excellent comments from comstockfunds.com, which a reader emailed to me. They are noteworthy for illuminating just what the Fed chose not to include in its communique:
"Neither statement from last week and last December makes any mention of weaker consumer spending, the low savings rate, the extremely negative trade balance, the existence of massive overcapacity, the weakening dollar or the global economic weakness. The FOMC also doesn't explain why the aggressive monetary ease that began two years ago still hasn't worked, and why it will suddenly work if the geopolitical clouds were to lift soon. The FOMC's Aug. 13 statement spoke about the soft spot that began in the spring. Another spring is less than two months away, and we're still in the same soft spot. That's almost as long as the average recession. With all due respect, we do think the Fed owes us a better explanation."
Post-Bubble Trouble Predates Prewar Clouds: Obviously, what has been making the headlines is the prospect of war, not Fed excuses. Just as people were willing to believe that the Fed would solve our problems, they are counting on everything to be fine once the war uncertainties are lifted. Nothing could be further from the truth, in my opinion. The big surprise, once war begins, is that people will realize that our economic and corporate problems are still with us. Then, they will have to face the reality of the ongoing post-bubble environment. Further, if housing prices begin to slide at some point, that will cause a whole other round of angst.
Meanwhile, too many people own too many stocks that are mispriced. I continue to believe that stocks remain too expensive, at the same time that the company fundamentals supporting these "pieces of paper" are deteriorating, not getting better. I may avoid being aggressively short until after the war begins, but I wouldn't want to own most stocks. Folks who are long stocks now should contemplate what to do once the war is under way. My suggestion is, plan to lighten up. The only question in my mind is how long the rally lasts, whether measured in days or weeks, after the outbreak of war. Of course, at this juncture, we can't seem to get any sort of rally going. But I still think that we will see one once war begins, though I don't expect it to last. |
