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Fleck Rap



Note: Look for a weekly installment of Bill Fleckenstein's market rap to appear on Minyanville and further commentary once we launch Buzz & Banter.

Mining the Metals Correction for Opportunities

Today we have a case of information overload, so I will try to cover all the topics as concisely as possible. Other than the announcement that J.P. Morgan Chase would acquire Bank One, the big news was a bevy of economic/earnings reports (including Intl Bus. Machines(IBM's:NYSE) premature release), and the violent decline in precious metals.

This morning's economic statistics were a mixed bag: The retail-sales number was less than expected (but last month's revised a bit higher), and jobless claims were a little better than expected. Less than expected was last night's guidance from Yahoo, which only managed to make the number, and which (in the early going today) weighed modestly on the Internet arena.

Schlock-Solid Numbers

Intel(INTC:NASD), on the other hand, came out about as I had expected, though apparently not as well as others expected, dragging the stock lower early on. My only comment: I'm still not sure exactly what Intel earned per share, given the tax rate and charges. Notwithstanding the calls for clarity in financial reporting, we still can't get companies to report rock-solid numbers. In any case, Intel did have some inventory on its balance sheet, which it admitted helped margins. Intel also announced cap-ex plans slightly less than most folks expected. I continue to believe that Q1 will be problematic for the company, though I don't think it's time to do anything about that, just yet.

Turning to my tech spec, Apple did beat expectations, but not by as much as I might have thought, due to less-than-anticipated sales of its new high-end PCs. Knowing that Apple users are uniquely rabid, I thought those boxes would have flown out the door. Had that occurred, Apple's gross margins would have been better, and its earnings release much sweeter. I followed through on my previously stated plan to sell on the news, no matter whether the shares were up or down. Net-net, I made a little money on the trade, even though my options all went to option heaven.

Grade-A Extrapolation from Apple:

The one thing I would take away from Apple's announcement is the fact that PC demand just isn't that great. We of course know this, witness the view from retailers like Radio Shack, which said so again last night, and from what Gateway and others have said before. To the folks who've crowed about IDC data, which reported units up 14% (though, more importantly, revenues flat), I would respond that since companies must spend dollars and can't spend units, that is no great development, especially given all the excitement about economic "strength." (The boost in units, though, obviously helped Intel somewhat).

Big Blue Blurts What It Do:

Turning to another source of excitement, IBM shook things up a bit by deciding to report its beat-the-number news today (all currency-related), rather than next Tuesday. I only glanced at the balance sheet and income statement, so I don't really have much to say about what the company did. I am very curious to see if its quarter was helped by pension adjustments, though we're not likely to learn that until we see its 10K. What I do find rather stunning is that IBM would move its earnings date. Being a director of a public company, I can't imagine what would prompt a respectable business to do that.

In any event, the aggregate of all the above news could be interpreted as bullish or bearish, depending on one's perspective. Net-net, the marketplace initially deemed it negative, as a couple hours into the day, the S&P and Dow were down about 0.5%, and the Nasdaq down 1%. But even while that was occurring, signs of ample liquidity abounded, for example, the fact that J.P. Morgan(JPM:NYSE) was barely down. Or consider Research in Motion (RIMM:NASD), which was up over $1 after having issued about $800 million worth of stock. If you want to see a fine example of speculation, take a look at that company's market cap of over $7 billion, which, at over 12 times revenues, is a lot to pay for any company, but especially one that makes such a commodity as handhelds.

The Bank-One Bride Wore Green

After digesting the early-morning selloff, the market put in a fine grind higher encompassing most of the day, that at its best levels saw all the major indices modestly green. After an ensuing mini-decline, we kind of flopped and chopped into the close, which was nearer to the best levels of the day than the worst. Financials were naturally quite strong in the wake of the Bank One deal. Sox stocks were up about 2%, with equipment names leading the charge.

All in all, it was again a fine day for speculation. Just as I was musing yesterday about a deeper metals/currency correction, I have also been of the mind that were that to occur, it could put afterburners on the stock market rally. That is just one of the reasons I've chosen not to be short thus far (my Nokia odd-lot short notwithstanding).

Away from stocks, there was a whole lot of red. Foreign currencies were down 0.75%, plus or minus. The precious metals were really under pressure. In the early going, silver was down 15 cents, or about 2.5%, and gold was down a quick $12, or about 3% to about $410. By the end of the day, gold closed down $13 at $408.70, and silver closed down 22 cents at $6.21.

Whitewater on Lake Como-Ditties:

Obviously, the bigger and more violent correction that I have been worried about in precious metals is here. I expect that readers of this column have noticed the unusually intense focus on short-term machinations by yours truly. To repeat, I have been trying to sort out the year-end and new year flow of funds to try to get a handle on where we were, because I have been leery of just such a correction.

I don't know how long this will go or how deep it will carry. What I can say is that the corrections we have seen have been short in time and deep in price, as characteristic of all bull-market pullbacks. I don't think gold will spend much time below $400, plus or minus. Whether that means $395 or $405, I have no idea. But I believe that at roughly those prices, there will be many producer buybacks, and a bit of a floor under the commodity. Further, we still have the nearly all but forgotten ETF in front of us.

Musing on the Confines of a Correction:

In any case, this current correction is going to be the one that folks will really want to nail. Regrettably, the length of its run in price and time is not knowable in advance. Obviously, we could see a lot of pressure tomorrow, as we have a three-day weekend upon us, and the Chinese New Year. Whether that will create an inflection point or presage yet more damage next week or beyond is impossible to say at this point.

Segueing to the currencies, most everything I've said about the metals reflects my views here, as well. I have been hoping for a big setback in the currencies that would (a) enable me to rebuild my currency position and (b) perhaps afford a reduced-risk entry point for buying foreign bonds. Meanwhile, I think that the metals/currencies correction will provide us with a buying opportunity, though to repeat, I don't know the pacing. I am watching intently for clues, and I will keep readers informed as best I can.

The only fly in the ointment: I'll be out next week, and there will be no Rap during that time (nor will I be able to check my email). That said, since what's happening in the metals/currencies is so important, I will post to the site any information (though it will be brief) that I think would be useful to readers.

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