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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.

Hi, I'm Al . . . Damn, I'm Good

Cable Guy Hits on Snow White

Not much happened overnight, and preopening was rather quiet for our indices. Fireworks, however, exploded in the corporate world, when Comcast(CMCSA:NASD) announced a bid to merge with Disney(DIS:NYSE). That saw Disney stock trading furiously preopening, and about 10% above the bid price, to boot. Interestingly, today happened to be the day Disney released its beat-the-number revenues and earnings, so there was quite a frenzy taking place in that arena.

Otherwise, stocks were rather moribund in the early going and unable to hang on to their initial upside, as the mildly green indices flipped mildly red. Perhaps there was some trepidation in the early going as the market panted in front of Easy Al's Fool on the Hill testimony (much more about that below).

High-Test Testimony

Suffice to say, the market exploded once Al's testimony hit the tape. From there, we went sideways for a while, exploded again, and went out on the highs. As you can see from the box scores, the Nasdaq was largely trumped by the S&P and Dow. Housing stocks sizzled, and financials went absolutely berserk, with many of the brokers approaching 10% of their all-time highs set during the mania (and Lehman in fact making a new high).

But if on a relative basis, tech was kind of left in the dust, witness an upside of only a couple percent for the Sox, that doesn't mean speculation wasn't in vogue. Taser Intl(TASR:NASD), after having split three-for-one, finished up almost $7, or a modest move of 15%. I would also note that volume picked up today, with over-the-counter trades clocking in at a chunky 2 billion shares, plus or minus. In any event, while exhaustion may have seemed to surface before, and we may have thought that this rally could turn out to be a failing one, with new highs for the move in the S&P and the Dow, it would appear that exhaustion is still in front of us.

Oratory Smiles on Outside Markets

Away from stocks, most everything was initially rather quiet, and traded both sides of unchanged in a small way. But after Easy Al started yapping, the outside markets also exploded and finished near the day's highs. The long bond was up about one point. The euro and Australian dollar were up better than 1%, closing at new highs for the move. While failing to make a new high for the move, the Canadian dollar still ended up about 1.25%. The yen was dogging it, up only 0.25%, as BOJ intervention obviously carried the day.

Turning to the metals/metals stocks, silver was up about 3%, to close near its highs for the move, while gold was up just shy of 1.5%, as it sold off a bit heading into its close. The metals stocks near to the hearts of myself and many readers had a fine day, with Newmont Mining(NEM:NYSE) up about 3% and Pan American Silver(PAAS:NASD) up over 5%. All in all, it was a wild and frenetic day in virtually every market that I follow.

Who Forgot to Activate the Green-Spam Filter?

Turning back to Al's jawboning du jour, I really didn't expect much more than some lovey-dovey talk. Recall that after the Fed's last meeting, when it threatened to possibly raise rates someday in our lifetime, I said it wouldn't be long before the cooing began. That is pretty much what I expected today from Easy Al's congressional testimony, though what we got was actually much more. I'll try to give you a short and sweet version, but folks should go read this for themselves to gain an appreciation of the sheer arrogance that oozes from his and the Fed's every pore.

The gist was that everything is just about perfect. The economy hasn't quite taken off yet, but it will. Balance sheets have been repaired, thanks to the liquidity provided by the Fed. Further, the Fed has not provided liquidity that would appear "excessive" -- this from the man who of course did not notice that liquidity was excessive back in the original mania.

Lip Service to Mega-Leverage

Meanwhile, he did note what's happening in housing, in terms of the cash-outs. He did note that the stock market went up 25% last year, and that tech stocks, mind you, went up twice as much. So he does know some of the things that have occurred, but as usual, he does not understand what they mean. To him, both a rising stock and housing market are unqualifiedly good things. To me, a rising stock and housing market may be a good thing. It is good (or bad) depending on valuation and the level of speculation involved. Today, it's the wild valuation, leverage, and intense speculation powering these markets that make them a negative.

In any case, he waxed poetic about where we are in the cycle. He spilled a whole lot of verbiage on the notion that the Fed's accommodative posture was "appropriate," and that while he couldn't stay easy "indefinitely," because the Fed would "eventually need to lift rates," since inflation was under control, the Fed could be "patient in removing its current policy accommodation." Of course in talking about why inflation is low, he failed to credit the hedonic adjustments that have helped to define away inflation.

Markets Cotton to 'Accommodative'

I assume that it was basically this ode to the perfection of things, the wonderfulness of the Fed's responses, and the ability to stay accommodative that created the moonshot move in the stock market, while simultaneously his comments on the dollar and the budget deficit put a moonshot bid into foreign currencies and precious metals. In essence, he described the consequences of the dollar's decline -- "13% from its peak in early 2002" -- as having been "mild."

Now, I don't know what basket he's come up with, but the dollar index used since 1973 is down twice that much, and even more against the euro. But he chose to vapor on a bit about how this hasn't really been a problem. Of course, that's partly because he gives a bunch of credit to his favorite magic word, that being "derivatives."

Continuing on, he implied that the dollar's fall will eventually be a good thing: "Accordingly, the currency depreciation that we have experienced of late should eventually help [my emphasis] to contain our current account deficit. . . .." So, it hasn't hurt us, and to the extent that it continues, it will help us.

Al Cast-Aspersions-Elsewhere Greenspan

From there, he proceeded to worry about oil-price hikes and natural gas (remember, he's an expert on those hydrocarbon markets). However, it seems to have escaped him that just yesterday, OPEC cited the weak dollar as a reason for cutting production. He wound up with the warning that there is one bad thing out there: the imbalance in the federal budgetary situation. "Unless addressed soon," he pontificated, this "will pose serious longer-term fiscal difficulties."

So, on top of his arrogance, his continued end-zone dancing, and his talk about how the Fed has made everything perfect -- none of which is true -- he now lays all our problems at the foot of the budget deficit (easy to acknowledge this bad thing, as it's out of his jurisdiction), so that when problems erupt down the road, he can assign the blame there. Whether he is that clever or that stupid, I really don't know, nor do I care. In any event, folks who take what he says at face value do so at their own risk.

The Bellwether in Bulletin Board Volume

Turning, finally, to a pastime facilitated by the Fed's nonexcessive policies, I'd like to spend a minute on the subject of speculation. It's a bit like pornography -- hard to define, but unmistakable when you see it. Of course we all have our own favorite poster boys for speculation, whether that be TASR or some other wild hairball, margin-debt statistics, or the like. Today I'd like to share a great black-and-white example of frenetic speculation, which I have talked about from time to time, and that is volume statistics for the Nasdaq bulletin board. (Thanks to a reader for forwarding the following data to me.)

In 2000, the zenith year of the mania, total Nasdaq bulletin board volume was 117, 244,000,000 shares. The year 1999, no piker in the speculative department, saw 81,426, 800,000 shares traded. And in the prehistoric year of 1998, when Long Term Capital blew up and Easy Al put the afterburners to the upside, the Nasdaq bulletin board traded 31,000,000,000.

Yesterday I noted the fair amount of "vanilla" Nasdaq volume in January. Specifically, it turns out that total volume in January for the bulletin board was 57,398,657,400 -- i.e., the month of January alone comprised nearly 50% of the total for 2000, 75% of the total for 1999, and obviously nearly twice as much as all of 1998. To repeat what I have been saying for a while now, we have definitely returned, if somewhat more selectively than in 1999/2000, to the United States of speculation.

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