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Fleck Rap



Note: Professor Fleckenstein provides his commentary for educational purposes - his insights are not intended as investment advice. You can find his daily comments at

Dipsters Become Blipsters

Overnight markets and our stock-index futures were uneventful, but durable-goods orders made news pre-opening when they were reported at 0.7%, vs. expectations of 1.5%. Ex transportation, they dropped 0.6% instead of gaining 1.1%. For those keeping score at home, that marks the first time since November 2000 that durable-goods orders less transportation have declined three months in a row. It must be noted that durable goods are a pretty volatile data series, but to me this sounds a bit more meaningful than just a "blip." We'll just have to see.

Chips Face Amkorporal Punishment

In any case, that disappointment appeared to be sufficient to sink the rally, as in the early going, my screen was a sea of red. Though the Dow and S&P were down just fractionally, the Nasdaq dropped 1.5% lickety-split, pressured by a weak chip sector. Amkor Technology (AMKR:NASD), a company in the packaging and test-services business, may have had a hand in that after reporting disappointing results/guidance and describing the slowdown as broad-based. More importantly, since Amkor now has too much capacity relative to orders, it's slashing cap-ex. (Semiconductor-capital-equipment bulls, please copy.) Intel (INTC:NASD), I would just point out, is Amkor's largest customer.

The first half of the day was a complete red-ink fest, but the market stabilized just after noon Eastern time, and we traded not far from those lows for a while. With about two hours to go, the market had another late-day mini-moonshot, such that in the blink of an eye, the S&P traded up 1% and the Nasdaq 100 traded up about 2%. We then saw a bit of a selloff into the close, which set the prices you see in the box scores.

For the most part, techs (especially chip stocks) were never really able to turn green, with the exception of Intel, which was oddly firm. Housing stocks also seemed unable to get going when the wild late-day rally was under way, and they closed mixed. The upside leaders during the rally were mostly cyclicals.

In fact, the rally looked like so many others have -- purely futures-inspired rallies -- most of which have not stuck, as there seems to be no shortage of supply around. In the old days, a jam job like that would have had the tape hunting for several days and several weeks. But lately, that's just not been the case, potentially indicating a serious amount of overhead supply.

Higher Oil Is 'Transitory,' Cluelessness Is Forever

Away from stocks, oil futures traded to an all-time high today, closing at $42.90. (So much for Easy Al's view that higher energy prices were transitory. Maybe he meant lower prices were transitory.) Initially, the dollar was again strong -- or, said differently, foreign currencies were very weak. They bounced on the disappointing durable-goods number, but that lasted for all of five minutes.

I think the end of the month is having a particularly pronounced effect on foreign currencies, along with the fact that they tend to trade very technically. Thus, when a trend gets a full head of steam up, data points are often ignored, both on the upside and the downside. In any case, by the time the dust settled, most major currencies (except for the yen, which was especially heavy) had cut their losses and closed unchanged, plus or minus. For reference, the dollar index closed about flat on the day. As I said yesterday, I believe that this latest hiccup to the downside is nearing its end.

Silver Bathes in Lake Success

As for the precious metals, gold and silver traded higher and lower, before closing up 0.75% and 2% respectively. It's worth mentioning that silver -- which at one point was down about 2% when the dollar was rallying in the very early going -- rallied that same amount in the space of about eight minutes. Later in the day, silver did it again, to close where it did. Silver continues to act a fair bit more resilient than does gold.

Joanie Pegs the Con in Confidence

Turning to my e-mail, I received a number of questions yesterday about the consumer confidence reading, which seems to be at odds with the other recent data, the stock market, and the housing market. Fortunately, as she often is, Joanie was right on hand this morning to rip apart the consumer confidence report and unearth what made that particular statistic so strong. Now I'll turn the mike over to her:

"Consumer confidence hit a two-year high in July, the fourth straight month of improvement. Cited was improvement in jobs. Here's the quote from API: 'The group attributed the sharp increase to continued improvement in the labor market, with more consumers reporting that they believed jobs were plentiful, and fewer expecting that conditions would worsen over the next six months.'

"Now here's the data supporting that comment: 'Jobs Plentiful' moved from 18.3 to 19.8. 'Jobs Hard to Get' moved from 26.2 to 26.0. Okay, does that set your world on fire? I thought so.

"Adding insult to injury, most are unaware, but in the '6-Month Expectations' category, there is also a question on Employment. Here are those results: 'More Jobs' dropped from 19.9 to 19.4; 'Fewer Jobs' dropped from 16.8 to 13.1. So, we make a case that about 3,500 U.S. consumers are not overenthusiastic about the prospects for job creation, but do think that the layoffs will subside. (Shedding bodies to the point of critical mass has a habit of doing that.)

"More insulting, the 'Current Conditions' component only rose a very slim six-tenths of a point. It is the 'Expectations,' i.e., visions of future lifestyles, that got all the attention, having jumped by a significant five points."

If that's not enough to make you at least somewhat circumspect about the data, Joanie goes on to point out the following: "The simplest reason of all as to why we shouldn't bet the ranch on the confidence figure: Consumer spending has zero correlation with consumer sentiment. The thing that dictates our action in the malls is . . . pocket kick, a.k.a., personal cash flow."

Lastly, an 'Anomaly' Homily

My closing comment: Folks believing in the June-was-just-a-blip theory proposed by our chief yell king Easy Al and all his followers do so at their own peril.

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