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Fleck Rap



When Bullish Eyes Are Smiling

Overnight markets saw a bounce, and our futures were firmer as we caught the preopening economic announcements. I won't bother wasting my time on the utter nonsense known as the CPI (though I would note that the January PPI hostage crisis, 27 days running, will end on day 28, as the BLS intends to release results tomorrow). Mortgage-application data were slightly more interesting, for reasons that Joanie said best:

"Wow. The survey made the biggest gain in over a year, hitting the highest level in nearly eight months. Refis surged by 39.7%. See what a limp non-farm payroll can do for folks? But consider this: New purchases were only up by 5.6%, signaling maybe that if you have a house, you can continue to play the game, but if you don't already have a house, maybe your chances of owning the American dream are currently more elusive to you, owing perhaps to your reduced financial circumstances of late."

For Housing, Wearing of the Red

In any case, the market opened about 0.5% higher and quickly squirted about the same, such that a couple hours into the day, the Dow and S&P were up about 1% and the Nasdaq better than that. Tech and financials powered the tape, while housing stocks petered, as today was their turn to be sold on good news (and the Jell-O was once again moved around the plate). Lennar was a particularly effective example, with that stock down 4% in the early going, despite winning at beat the number. So, the pattern continues: Individual companies tend to get sold on good news, though not always, as 3M demonstrated yesterday. Maybe it's a case of expected good news getting sold.

The market lurched higher just before midday, digested those gains, then made another push late in the day, notwithstanding a slight selloff near the close. For all intents and purposes, though, we went out near the highs. As the box scores show, the day ended as it began -- with tech/financials firm (cyclicals, too) and housing weak, on the back of sustained Jell-0 moving, which benefited the other groups.

Yellow Dog Smokes Pot o' Gold

Away from stocks, the yen was higher, and all other currencies slightly lower. However, precious metals popped, with silver up 2% and gold up 1%. Today I added to my gold bullion trading position, because (as noted yesterday) I think we are nearing the end of this correction process (not meant as advice). I had wanted to wait a bit longer, but when gold bucked the weaker euro all morning, I decided to pull the trigger using a close stop, though it is now a ways away.

Blarney from Mr. Chambers

Turning to the news, one of America's biggest corporate cheerleaders, John Chambers, was on the tape making Greenspan-like pronouncements. According to Bloomberg, the Cisco CEO told a Merrill conference he sees an increase in business confidence and expects capital spending to drive job growth. Maybe if Easy Al retires, they can let Chambers run the Fed and Cisco at the same time, since he seems to believe himself capable of doing both. Though a competent businessman, he is -- in the bubble-spotting department -- as delusional as Greenspan. That strikes me as a pretty good set of credentials for the job.

Gray Lady Wags Finger at Greenspan

While on the topic of the Fed, bubbles and, by extension, easy money, none other than the editorial page of today's New York Times weighed in on "The Cost of Cheap Money." Noting that (surprise, surprise) there is such a thing as too much of a good thing, the editorial pointed out the problems that can accrue and occur when the central bank prefers to spike the punch bowl, rather than remove it.

"Mr. Greenspan should heed the lessons of the stock market bubble of the late 1990's. In the new economy, remember [remember when that specious concept was dignified with the capital letters "N" and "E"?] we were assured that the old speed limits needn't apply. What investors were not warned about enough was the extent to which the virtuous cycle of cheap money, low inflation and strong growth was feeding a speculative financial market bubble, which eventually popped at huge cost to those investors" -- and, I might add, to job holders and future job seekers.

Continuing on, the editorial cites a potential bubble forming in the housing market, suggesting the Fed consider that wildly unpopular action I have noted for a long time, which is to raise rates: "The Fed should gradually wean the country off such extraordinarily easy money before it is forced to do so abruptly, and painfully. It cannot wait until after the election, nor until it sees inflation pick up. Rates are so low that the Fed has plenty of room to move before being accused of adopting a restrictive monetary policy. It needs to get started."

Spilling Ink, to No Avail, on Al

But alas, though The New York Times urges the Fed to act like an adult, it appears not to understand that such behavior is beyond the Fed, whose irresponsibility has only succeeded in postponing the pain, and ensuring a much greater wipeout once these bubbles start to burst. Yes, the Fed should raise rates and get it over with, and stop subsidizing people who spend recklessly at the expense of people willing to save. But that's not something Easy Al is going to do. Mr. Market will deal with the Chairman and the economy in his own sweet time. Regrettably, that process will involve a tremendous amount of pain, thanks to the wanton recklessness of the Fed.

No positions in stocks mentioned.

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