Our markets have a recent history of missing important warnings. It's no different now as investors deny the obvious and the economy stumbles along.
I have been in the investment business for more than 30 years now, so I have grown accustomed to seeing lunacy, naiveté and just plain stupidity more often than one would think possible, given that investing is supposed to be about being smart.
It seems extraordinarily obvious to me that the economy is, in essence, broken because of the stock and housing bubbles we have experienced, and that the Federal Reserve is trapped. It also seems clear that at some point we will have a funding crisis (bond yields will leap and/or the dollar will tank) due to excessive government borrowing. (Click here for more on this funding crisis.)
However, that's not going to occur until certain attitudes shift, so I can see why this is taking some time to unfold. What I cannot understand is how folks don't recognize the fact that, since the economy has been unable to create jobs for three years now, it isn't going to start magically generating them now.
Is the market too hot, too cold or just right? Recent data are sending mixed messages, but the likely endgame still seems crystal clear: more money printing.
This week has been a good illustration of the stock market wanting to have its cake and eat it too. On Monday, the ISM Manufacturing Index showed better-than-expected optimism with a reading of 54.8, versus a reading of 53.4 last month. That sparked a rally of about 1%, plus or minus, in the major indices.
Obviously, a better ISM report is a vote for the "Goldilocks" mindset that the Federal Reserve is keeping the economy "just right." As such, it is also less of a catalyst for more help from Fed Chairman Ben Bernanke's money-printing machine.
However, the market did not dwell on that report, as attention quickly turned to other data points.
The Fed's most-recent meeting offered no hint of stimulus and no sign anyone recognizes the economy is slowing again. Also: The Apple gets bruised.
After a rough spell recently that saw it almost 14% off its recent high, Apple (AAPL) enjoyed a moment in the sun this week, bouncing 8% Wednesday as it once again announced earnings that made it a huge winner at Wall Street's favorite game: beat-the-number.
With that out of the way, we can turn our attention to whether its stock price can make a new high, or if this rally turns out to be of the failed variety.
Again, I have no position in Apple, but since it is leading the Nasdaq ($COMPX) around by the nose, I believe it merits our continued attention. For more of my thoughts on Apple, take a look at "Is it time to bet against Apple?"
Some of the tactics and rosy scenarios emanating from Wall Street are reminiscent of the dot-com heyday. Plus, notes from the spring Grant's Conference.
It's early, but earnings season has already brought us two throwbacks to the late-1990s stock bubble.
First came the stories waxing rhapsodic about Google's (GOOG) wonderful 2-for-1 stock split. Lest we forgot, that was a tactic used to drive stocks wild when people were in full dot-com delirium.
This time, however, it didn't do much for Google shares, which gave back all of March's gains, and then some, before recovering a bit.
The first half of April has punched holes in the idea that the economy is becoming healthy, either here or abroad. It also raises the specter of more easy money from the Fed.
Even though it is not headline news, European debt markets have begun to stink up the joint again.
Italy and Spain saw their borrowing costs increase in recent days, and the spread between the yields on Spanish and German government debt increased to the levels we last saw in December -- an indication of rising relative risk.
Though U.S. investors are mostly ignoring it, the "pain in Spain" -- and Italy -- continued last week, as their debt was pounded on Tuesday, with Spanish yields closing in on 6%.
Technology is all about staying ahead of the game, and Research In Motion is losing the battle. Plus: The market is still frightened by the Fed's shadow.
I had to chuckle recently when I saw that Research In Motion (RIMM) missed its earnings estimate yet again and is no longer going to be issuing earnings guidance. In addition, the company's founder and former CEO, Jim Balsillie, has stepped down from the board.
Longtime readers may remember the battles I had with RIMM, a company I viewed as just a commodity masquerading as something unique. Of course, I don't know if it was doing the masquerading so much as wild-eyed stock bulls couldn't recognize Research In Motion for what it was, just as they were blind to problems at other companies that I and others of like mind have taken to task, such as Gateway Computer and Iomega.
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People are beginning to realize that the inflation joke is on them, with rising prices everywhere and deflation nowhere in sight. Plus: Words of wisdom on gold.
I have owned gold and gold-related investments aggressively since 2001 for one main reason: the mismanagement at the U.S. Federal Reserve, with its unplanned and unarticulated determination to debase our currency and promote inflation.
Though we have had long periods of apparent stability, since 1971 stability has really been the case only when Paul Volcker was Fed chairman and immediately after his tenure.
The money-printing at the root of our problems essentially intensified exponentially under Alan Greenspan, and now Ben Bernanke, fueled particularly over the past four or five years by worldwide fears of deflation. The irony, of course, is that the fear of deflation guarantees inflation as central banks are willing to use the printing press with reckless abandon.
I think it is highly probable that the fears of a deflationary accident have passed, so folks might be more receptive to signs of inflation, which would certainly change the landscape in many markets.
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ABOUT BILL FLECKENSTEIN
This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.
- June gold traded in positive territory for most of today's pit session. Prices advanced as high as $1307.10 per ounce and dipped to a session low of $1297.90 per ounce in mid-morning action. The yellow metal eventually settled with a 0.3% gain at $1303.40 per ounce.
- May silver rose to a session high of $19.81 per ounce shortly after floor trade opened. It then chopped around near the $19.60 per ounce level and settled with a 0.8% gain at $19.64 per ... More
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As the devil-may-care bravado of Wall Street marches on, history warns that -- in the end -- there will be the devil to pay.
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