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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.

The Cisco Kid Lays an Egg

Overnight, the foreign markets were weaker (led by Japan's decline of a couple percent), and likewise our stock-index futures, due to Cisco's(CSCO:NASD) disappointing guidance and body English. After opening under pressure, the market caught a feeble bounce on the back of better-than-expected data for factory orders and ISM non-manufacturing. The early going saw the S&P down 0.5%, the Dow fractionally red, and the Nasdaq down a percent and change, as the Cisco kid was no friend to tech stocks.

Speculation Yields to Lamentation

Over the course of the day, the market flopped and chopped around its best levels until a couple hours before the close, when a sinking spell took it pretty much to the day's lows, about where we closed. As the box scores show, though, the Dow finished quite firm, and the S&P modestly weak.

Meanwhile, the Nasdaq was the house of pain, led to the downside by the heretofore mighty, mighty Sox, which has of late taken on a fair amount of water. Given that most people own Sox-labeled stocks because they "act so well," and the Sox is now below its 50-day moving average, there's extra angst in that arena. Housing stocks also came under a fair amount of pressure. All in all, today was a very heavy day, and one that I'm sure caused a bit of indigestion among the bullish community.

No Cure for the Common Cisco

There's really not much to reprise about Cisco's results. The fact that people scrutinize them so carefully is just part of the nonsense surrounding "beat the number." Cisco had a pretty good quarter, thanks to big government spending and whatever budget-flushing occurred. Everyone knows that John Chambers loves to grab the pom-poms and the microphone. That he was so muted this time has led folks to believe that perhaps things might not be so wonderful going forward.

But one needn't overanalyze. Cisco has a ridiculous valuation, as does almost all of tech and nearly the entire tape. Focusing on the small, inside-baseball details misses the bigger problems of price and macro imbalances.

Fruits of the 'Labor' Room: Baby Bull or Bear?

Though folks continue to play beat the number and speculate full throttle, the fact of the matter is that there's a tremendous amount of risk in the stock market. With the tape now acting heavy, Friday's data will likely be pivotal. If I were betting the over/under on the 175,000 job-creation estimate, I'd take the under. On the other hand, the same government that I've been discussing this week, in terms of statistics manipulation, is doing the counting, so who the hell knows what number they'll come up with? I continue to believe we'll have a better idea of how this topping process plays out after we see Friday's data and Friday's reaction.

Turning to the action in outside markets, things were a little quieter than they have been (ex the Aussie's decline of 0.5%), with the euro, yen, and Canadian dollar making only small moves. The precious metals were a bit firmer, with silver up 3 cents and gold up $1.80.

Golden Nuggets for a Newmont Appetizer

That brings me to Newmont Mining(NEM:NYSE), my favorite gold stock, which reported results this morning. Though the conference call won't be until tonight, it's safe to say that most of what I saw in the press release and financials was pretty constructive. The company reported earnings of 36 cents a share, and stated that its reserves, at $375, would be up to 100 million ounces (corroborating the math that I shared with readers a few months back, via John Doody of "Gold Stock Analyst"). At $400 and higher, reserves would obviously be even higher. But as Newmont has stated in the past, it would need to spend quite a lot of money on drilling to figure out exactly how much higher.

One negative in the report, though, was the fact that Newmont's cash costs will be a little higher this year, estimated at $220 to $230 an ounce, which almost offsets the increased reserves at $375. (In any case, I'll have more to say about this tomorrow, after I listen to the conference call, but everything appears to be on track.) Meanwhile, the stock was under pressure in the early going, and I used the weakness as an opportunity to buy some longer-dated calls on Newmont, something I have been thinking about for quite a while.

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