Fleckenstein-"As Iraq Battle Looms, Battle of Bubble Li
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Fleckenstein-"As Iraq Battle Looms, Battle of Bubble Li
Deixo-vos aqui a crónica diária de Bill Fleckenstein uma das pessoas que sempre conheci "bear", ainda antes de março de 2000:
"As Iraq Battle Looms, Battle of Bubble Lingers"
By Bill Fleckenstein
Special to RealMoney.com
01/27/2003 06:40 PM EST
"Everyone knows that the markets were roughed up last week while I was away. Overnight, the beating continued, with markets around the world taking a dive. Preopening, our stock index futures were about1% lower, but some of their overnight losses were cut when a rumor circulated that Saddam had left town -- again. That rumor, combined with the release of a better-than-expected number for housing starts, caused a straight-up blast that momentarily turned the stock index futures green on the day. But the spike was sold as we headed into the report from chief U.N. weapons inspector Hans Blix.
Skittish Skirmish: The back-and-forth motion continued to dominate the early going, with market fears and hopes battling each other against the backdrop of a looming war. After a couple of hours, for instance, even as the S&P and Dow were down about 1%, the SOX was nearly flat on the day. Many chip stocks were in fact positive, suggesting a certain amount of bravado, while at the same time the VIX and the QQV, two measures of volatility, were both up about 5%-plus.
The early morning selloff continued until just before lunchtime Eastern time, when we hit our lows. Then we spent the rest of the day flopping and chopping in a range slightly above those lows. As the box scores show, the weakness was slightly more pronounced in the Dow and the S&P than in the Nasdaq, with a handful of tech stocks actually managing to stay green. Today was an odd combination of fear, illuminated by the decline in the big indices and the fact that the VIX saw a big pop, and complacency, as shown by the modest decline to slight rise for tech stocks, and the fact that the VXN and QQV, volatility measures for Nasdaq stocks, were not up as much. So while some people fear war and are selling stocks, others are trying to become aggressively positioned for the rally they expect. In any case, we should probably pay even less attention to the motion of the market over the next couple of weeks, as the "noise quotient" will be far higher than usual.
Away from stocks, the outside markets also saw wild moves. After having been up about $5 overnight, gold turned red at one point, before rallying to close up $1. Likewise, after its early strength, silver was down 2%, before ending the day down 1%. The euro and the yen also saw similar motion, with the yen ending lower and the euro higher. Fixed income was hit for three-eighths of a percent, after also losing its early gains.
Media Blind to Mania Blight: Turning to the news, Iraq-oriented headlines have been dominating the day's trading and emotions. To read the popular press, you would think that all of our troubles relate exclusively to the looming confrontation. Consider, for example, the following headline in today's Wall Street Journal: "Prospects of War Weigh on Stocks: Even Quick Victory May Not Help." This is not to trivialize Iraq's bloodthirsty tyrant or the impact of terrorism. Without Saddam and terrorism, the world would be a better place. But to repeat what I have said so many times, the problems that we face in this country took root many years earlier, in the stock market bubble. In view of the popular press's failure to understand the real issue, for those readers who are new to the Rap, and since I haven't talked about it in a while, I'd like to take the time now to belabor the point. Again, this is not to make light of the upcoming war with Iraq.
Alan Greenspan and the other lunkheads at the Fed have done far more damage to most Americans than has Iraq. The bubble that was fomented under their watch precipitated the wild misallocation of capital and the recklessness on the part of individuals who believed that Greenspan would save them. While this illusion held sway, people believed in flights of fancy such as Internet stocks, stock splits, "beat the number," etc. The fervor of their belief was ultimately expressed in a Nasdaq 5000-
The unwinding of that wild orgy is still our problem, exacerbated by a Fed and government still determined to fight off the "destructive side of capitalism." Capitalism is the best economic system, but it does come with bad times that follow good times. Of course, those bad times help set the stage for the next round of good times. Trying to stop the destructive side of capitalism only leads to huge problems. In the 1990s the Fed believed it was an omnipotent central planning agency, capable of steering us from good times to better times. Regrettably, lots of people checked their thinking caps and common sense at the door, as they willingly suspended disbelief, so to that extent, they were not blameless.
The Butcher of Monetary Policy: However, more should be expected of Fed officials. Sadly, Alan Greenspan refused to stand up like an adult and, in the words of Arthur Burns, "take away the punch bowl." The excess capacity, reckless behavior and accumulation of debt spawned by a bubble that he fed are still the problems that plague us. Only time will cure those problems. Attempts by Fed-heads such as Mr. More-Beer McTeer to minimize them, by telling people to continue consuming, will only make the situation worse.
The incompetence of the Fed has been an ongoing topic of this column until last September, when I vowed to stop speaking about Al.com. Forgive me for breaking this vow at length today, but given the popular press's difficulty in understanding our problems, the situation seems appropriate. At the time, I opined: "So that about sums up what I have to say about this miserable, whiny speech by Greenspan [last August at Jackson Hole, Wyo.] on behalf of the Fed. I am now going to stop talking about Al. He is finally yesterday's news, and in my opinion no longer relevant. I would just like to emphasize that his admission of the bubble should mark the start of the process that ends in his being completely discredited. Yes, before this is all through, people will see that their apparent maestro is, in fact, the most incompetent and irresponsible Fed chairman in history. And sadly, lots of them will pay for his experiments and subsequent mistakes."
The Bulls of Baghdad: Meanwhile, as incompetence plays out on the Potomac, the near-term direction of the market will, in all probability, be dictated by Iraq headlines. In the past, I noted the dichotomy in which speculators deem war angst to be bearish but the outbreak of war itself to be bullish. I think most people, myself included, expect that there will be a rally once the war commences or in the unlikely event that Saddam leaves town and we avoid a war. In my columns on Jan. 6 and Jan. 17, I talked about a strategy that I had evolved, on the basis of the combination of war crosscurrents and economic weakness. In essence, I expressed my view that the rally over Jan. 6 to Jan. 8 should be sold, because the economic news would be bad. I expected that the war angst we're now seeing would create further pressure.
I have no idea how long the present decline will last, but I expect that at some point, there will be a rally leading up to or just after the outbreak of war. To reiterate what I said on Jan. 17, I anticipate that once war commences and a rally is launched, all previous fears will be abandoned and all economic weakness will be blamed on the present war angst. People will take up the pompom chant about the bottom being in, and how wonderful the second half will be. I don't believe any of those things. (Also, while it's very likely that the "battle" with Iraq will be won, it's not clear whether the "war" will be won.)
Speculative Juice Suspended in Pea Soup Visibility: In any case, I am getting ahead of myself once again. This is a long way of trying to give my two cents' worth on the "State of the Economy/Stock Market." Over the course of the next several weeks, I anticipate that the stock market will be wildly speculative, with huge surges in both directions. The market will be more "unanalyzable" than usual, because we have this big geopolitical fog. However, once that fog starts to lift (and at some point it will lift), we'll have a better chance to assess whether or not our true problems are being discounted. Of course, when speaking of the stock market, nothing would be more useful than lower prices, because lower prices would reduce the risk in owning equities and indicate that our problems had been discounted. That said, lower prices only benefit those who don't own stocks now, so that they can buy them later. But that's an issue for another day.
Meanwhile, our problems have only been complicated by the collapse in the dollar. That accounts for the move in gold (aided also by buying on the back of war fears), and I'm sure war crosscurrents will affect the gold markets as well. But the move in gold, in my opinion, is about the rest of the world concluding that our emperor (Al) is wearing no clothes. (I'll grant him this title, for the moment, because for 10 years I'm sure many people considered him more important than the president.) Last week's comments by China and Russia's central bankers put an exclamation point on the fact that the world has plenty of dollars at the moment, thank you very much.
So, we have a whole host of problems to deal with going forward, not the least of which is war. Stock prices come nowhere close to discounting any of these problems, but in the meantime, investors remain remarkably complacent. (That is certainly the view of most of the "pros" who weighed in at Barron's Roundtable these past three weeks.) At least thus far, almost all of them assume we can't go down for four years in a row. Of course, they also thought we couldn't go down for three years in a row. Many of these "mechanical" rules that I have labeled "arm-waving" have not worked since the bull market ended in March 2000, and they will not work prospectively.
Marc Time with Foreign Intrigue: As an antidote to all that noise, people might want to read some potential long ideas described by Marc Faber in the aforementioned Barron's. I thought that many of his foreign stock recommendations looked interesting, and I plan to investigate some of them. By the way, I heartily recommend his new book, Tomorrow's Gold: Asia's Age of Discovery. I am only about halfway through it, but it is phenomenal, and one of the best investment books I have ever read. I think that anyone with even a passing interest in equities and investing should pick up a copy of this book and read it."
(in www.realmoney.com)
"As Iraq Battle Looms, Battle of Bubble Lingers"
By Bill Fleckenstein
Special to RealMoney.com
01/27/2003 06:40 PM EST
"Everyone knows that the markets were roughed up last week while I was away. Overnight, the beating continued, with markets around the world taking a dive. Preopening, our stock index futures were about1% lower, but some of their overnight losses were cut when a rumor circulated that Saddam had left town -- again. That rumor, combined with the release of a better-than-expected number for housing starts, caused a straight-up blast that momentarily turned the stock index futures green on the day. But the spike was sold as we headed into the report from chief U.N. weapons inspector Hans Blix.
Skittish Skirmish: The back-and-forth motion continued to dominate the early going, with market fears and hopes battling each other against the backdrop of a looming war. After a couple of hours, for instance, even as the S&P and Dow were down about 1%, the SOX was nearly flat on the day. Many chip stocks were in fact positive, suggesting a certain amount of bravado, while at the same time the VIX and the QQV, two measures of volatility, were both up about 5%-plus.
The early morning selloff continued until just before lunchtime Eastern time, when we hit our lows. Then we spent the rest of the day flopping and chopping in a range slightly above those lows. As the box scores show, the weakness was slightly more pronounced in the Dow and the S&P than in the Nasdaq, with a handful of tech stocks actually managing to stay green. Today was an odd combination of fear, illuminated by the decline in the big indices and the fact that the VIX saw a big pop, and complacency, as shown by the modest decline to slight rise for tech stocks, and the fact that the VXN and QQV, volatility measures for Nasdaq stocks, were not up as much. So while some people fear war and are selling stocks, others are trying to become aggressively positioned for the rally they expect. In any case, we should probably pay even less attention to the motion of the market over the next couple of weeks, as the "noise quotient" will be far higher than usual.
Away from stocks, the outside markets also saw wild moves. After having been up about $5 overnight, gold turned red at one point, before rallying to close up $1. Likewise, after its early strength, silver was down 2%, before ending the day down 1%. The euro and the yen also saw similar motion, with the yen ending lower and the euro higher. Fixed income was hit for three-eighths of a percent, after also losing its early gains.
Media Blind to Mania Blight: Turning to the news, Iraq-oriented headlines have been dominating the day's trading and emotions. To read the popular press, you would think that all of our troubles relate exclusively to the looming confrontation. Consider, for example, the following headline in today's Wall Street Journal: "Prospects of War Weigh on Stocks: Even Quick Victory May Not Help." This is not to trivialize Iraq's bloodthirsty tyrant or the impact of terrorism. Without Saddam and terrorism, the world would be a better place. But to repeat what I have said so many times, the problems that we face in this country took root many years earlier, in the stock market bubble. In view of the popular press's failure to understand the real issue, for those readers who are new to the Rap, and since I haven't talked about it in a while, I'd like to take the time now to belabor the point. Again, this is not to make light of the upcoming war with Iraq.
Alan Greenspan and the other lunkheads at the Fed have done far more damage to most Americans than has Iraq. The bubble that was fomented under their watch precipitated the wild misallocation of capital and the recklessness on the part of individuals who believed that Greenspan would save them. While this illusion held sway, people believed in flights of fancy such as Internet stocks, stock splits, "beat the number," etc. The fervor of their belief was ultimately expressed in a Nasdaq 5000-
The unwinding of that wild orgy is still our problem, exacerbated by a Fed and government still determined to fight off the "destructive side of capitalism." Capitalism is the best economic system, but it does come with bad times that follow good times. Of course, those bad times help set the stage for the next round of good times. Trying to stop the destructive side of capitalism only leads to huge problems. In the 1990s the Fed believed it was an omnipotent central planning agency, capable of steering us from good times to better times. Regrettably, lots of people checked their thinking caps and common sense at the door, as they willingly suspended disbelief, so to that extent, they were not blameless.
The Butcher of Monetary Policy: However, more should be expected of Fed officials. Sadly, Alan Greenspan refused to stand up like an adult and, in the words of Arthur Burns, "take away the punch bowl." The excess capacity, reckless behavior and accumulation of debt spawned by a bubble that he fed are still the problems that plague us. Only time will cure those problems. Attempts by Fed-heads such as Mr. More-Beer McTeer to minimize them, by telling people to continue consuming, will only make the situation worse.
The incompetence of the Fed has been an ongoing topic of this column until last September, when I vowed to stop speaking about Al.com. Forgive me for breaking this vow at length today, but given the popular press's difficulty in understanding our problems, the situation seems appropriate. At the time, I opined: "So that about sums up what I have to say about this miserable, whiny speech by Greenspan [last August at Jackson Hole, Wyo.] on behalf of the Fed. I am now going to stop talking about Al. He is finally yesterday's news, and in my opinion no longer relevant. I would just like to emphasize that his admission of the bubble should mark the start of the process that ends in his being completely discredited. Yes, before this is all through, people will see that their apparent maestro is, in fact, the most incompetent and irresponsible Fed chairman in history. And sadly, lots of them will pay for his experiments and subsequent mistakes."
The Bulls of Baghdad: Meanwhile, as incompetence plays out on the Potomac, the near-term direction of the market will, in all probability, be dictated by Iraq headlines. In the past, I noted the dichotomy in which speculators deem war angst to be bearish but the outbreak of war itself to be bullish. I think most people, myself included, expect that there will be a rally once the war commences or in the unlikely event that Saddam leaves town and we avoid a war. In my columns on Jan. 6 and Jan. 17, I talked about a strategy that I had evolved, on the basis of the combination of war crosscurrents and economic weakness. In essence, I expressed my view that the rally over Jan. 6 to Jan. 8 should be sold, because the economic news would be bad. I expected that the war angst we're now seeing would create further pressure.
I have no idea how long the present decline will last, but I expect that at some point, there will be a rally leading up to or just after the outbreak of war. To reiterate what I said on Jan. 17, I anticipate that once war commences and a rally is launched, all previous fears will be abandoned and all economic weakness will be blamed on the present war angst. People will take up the pompom chant about the bottom being in, and how wonderful the second half will be. I don't believe any of those things. (Also, while it's very likely that the "battle" with Iraq will be won, it's not clear whether the "war" will be won.)
Speculative Juice Suspended in Pea Soup Visibility: In any case, I am getting ahead of myself once again. This is a long way of trying to give my two cents' worth on the "State of the Economy/Stock Market." Over the course of the next several weeks, I anticipate that the stock market will be wildly speculative, with huge surges in both directions. The market will be more "unanalyzable" than usual, because we have this big geopolitical fog. However, once that fog starts to lift (and at some point it will lift), we'll have a better chance to assess whether or not our true problems are being discounted. Of course, when speaking of the stock market, nothing would be more useful than lower prices, because lower prices would reduce the risk in owning equities and indicate that our problems had been discounted. That said, lower prices only benefit those who don't own stocks now, so that they can buy them later. But that's an issue for another day.
Meanwhile, our problems have only been complicated by the collapse in the dollar. That accounts for the move in gold (aided also by buying on the back of war fears), and I'm sure war crosscurrents will affect the gold markets as well. But the move in gold, in my opinion, is about the rest of the world concluding that our emperor (Al) is wearing no clothes. (I'll grant him this title, for the moment, because for 10 years I'm sure many people considered him more important than the president.) Last week's comments by China and Russia's central bankers put an exclamation point on the fact that the world has plenty of dollars at the moment, thank you very much.
So, we have a whole host of problems to deal with going forward, not the least of which is war. Stock prices come nowhere close to discounting any of these problems, but in the meantime, investors remain remarkably complacent. (That is certainly the view of most of the "pros" who weighed in at Barron's Roundtable these past three weeks.) At least thus far, almost all of them assume we can't go down for four years in a row. Of course, they also thought we couldn't go down for three years in a row. Many of these "mechanical" rules that I have labeled "arm-waving" have not worked since the bull market ended in March 2000, and they will not work prospectively.
Marc Time with Foreign Intrigue: As an antidote to all that noise, people might want to read some potential long ideas described by Marc Faber in the aforementioned Barron's. I thought that many of his foreign stock recommendations looked interesting, and I plan to investigate some of them. By the way, I heartily recommend his new book, Tomorrow's Gold: Asia's Age of Discovery. I am only about halfway through it, but it is phenomenal, and one of the best investment books I have ever read. I think that anyone with even a passing interest in equities and investing should pick up a copy of this book and read it."
(in www.realmoney.com)
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