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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

Please note that this is Prof. Fleckenstein's Rap that was published yesterday afternoon, however given Fleck's focus/expertise in the area, we still find it helpful.

Intermission Before Intel and Employment

Overnight markets were quiet, and likewise our stock-index futures. Preopening, the economic data continued to exhibit sogginess, as initial jobless claims jumped 22,000 to 362,000, vs. expectations of 340,000. I might add that most of the data we've seen thus far suggest that tomorrow's employment number ought to be on the weakish side, statistical machinations notwithstanding.

A Frost on August Sales

In the retail department, Wal-Mart's (WMT:NYSE) same-store sales were below expectations, and they said earnings would be at the low end of the range. We heard modest to slightly-more-than-modest disappointment from a bevy of other retailers, including Sears (S:NYSE), Federated (FD:NYSE), and Costco (COST:NASD), though the news that I was most keen to learn, from Best Buy (BBY:NYSE), looked okay, even if their comps were a tiny bit light. In any case, the sum of those data points resulted in a completely and totally boring early morning that saw the indices fractionally higher, with no particular theme that I could find.

The market basically went sideways in the middle of the opening range until about 1:30 Eastern time. Then we had a little ramp job that took us out, in essence, on the highs of the day. It appeared to be inspired by a story that passed on Bloomberg, in which Stephen Friedman, the director of President Bush's Council of Economic Advisors, said: "Signs for job growth are very positive." Since the employment number is given to the head of the Council, as well as the Fed, late in the day before its release the following morning, I assume people took this as a sign that the number was going to be good.

Of Bottom-Calling and Call-Buying

There was also massive call-buying in front of Intel, for the fourth day in a row, as folks are laying down bets that its mid-quarter update tonight won't be as bad as has recently been feared. I myself continue to take the other side of that bet (in a big way), and I am struck by how many are willing to gamble that the bottom is in right here and now. These folks still seem to believe that the soft patch which keeps getting softer and longer is only just a blip. Big bets are being made backing Easy Al's view, and I think those doing so will come to regret that, though obviously they can win for a short space of time.

Today, a lot of shorts got run in in retail stocks that announced bad news but went up anyway. In fact, I saw a good deal of short-covering almost everywhere, which was the big theme of the day. Given where the VIX is, the amount of short-covering, and the put/call levels generically, I think we're probably closer to the top of the rally than the start of a whole new leg. But that's a pure guess on my part. Obviously, we'll know soon enough.

Away from stocks, the dollar was mixed ahead of tomorrow's employment data. Silver was down 2 cents, while gold was down $2.80. Oil was up 4% in the early going, before closing flat. Fixed income was fairly heavy.

Falling Leaves and Chips

Today's Rap is going to be rather short, because there isn't much worth commenting on. That, however, will not be the case tomorrow, given the employment number as well as tonight's mid-quarter update from Altera (ALTR:NASD), in addition to Intel (INTC:NASD). (Also, it's a Friday in front of a three-day weekend.) I expect that both Intel and Altera will be slightly disappointing, at a minimum, though they may try to get investors to hold out hope and then really lower the boom when they announce third-quarter earnings. As I have been saying, I think the month of September will be quite unpleasant for the chip sector. The only question is when the market finally arrives at the same conclusion.

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