Sour Apple hints at broader weakness

Wall Street looks to its tech hero to save the day. But with Apple's earnings miss, it is clearer than ever that only the Fed can give the market what it wants: More easy money.

By Bill_Fleckenstein Jul 27, 2012 2:09PM

The first two days of trading this week saw more chaos worldwide, as Asian markets were trashed on Monday and European markets punished Monday and Tuesday. The locus of the trouble was again Europe's debt markets; Italian and Spanish bonds were hammered, with yields for the former climbing to 6.3% and for the latter to 7.4%.

 

On Tuesday, the yield for Spain's two-year bond climbed past 5%. (Contrast that with the U.S. two-year, whose yield, at 22 basis points, is a mere rounding error.) Spain is in the process of coming completely unstuck, with its regional governments (entities similar to states in the U.S.) going bust, on top of the central government and central bank's problems.

 

The swagger we saw the previous week (of buying companies despite the prospect of weaker third-quarter results) was dampened rather decisively Tuesday morning when UPS (UPS) lowered its expectations for the rest of the year and lost 5%. More important, that company is a pretty good barometer for the rest of the economy, but it remains to be seen if and when Federal Reserve Chairman Ben Bernanke gets the memo (more on that later).

 

The trading both Monday and Tuesday saw a pattern of U.S. stocks selling off, but then rallying late in the day to trim the losses, with Tuesday's rally due in part to the hope that Apple (AAPL) might save the day when it reported its results Tuesday night.

 

One bad Apple

Once again, the stock market was surprisingly resilient Wednesday, given the fact that the current "greatest company in the history of the world" stumbled at beat-the-number. In fact, it more than stumbled, as sales were very disappointing. It was one of the few times in the past decade Apple has not won at that silly Wall Street game.

 

Apple has looked vulnerable to me since March, as I pointed out at the time (the column was reposted on April 5 as part of a site refresh; it generated a fair amount of "hate mail" in the comments section, but unfortunately those are no longer visible). Thus, Apple's results this week were not a shock, nor should they have been to regular readers.

 

At any rate, that should have been a double whammy that brought on selling due to Apple's weighting in the Nasdaq 100 (NDX) (as well as many exchange-traded funds), and the fact that the economies of the world are so weak that even mighty Apple couldn't make its projections.

 

Instead, the undertow was offset by the fact that The Wall Street Journal ran a story above the fold by Jon Hilsenrath, a regular conduit of leaks and spin from the Federal Reserve, which suggested that the Fed was more prepared to "do something" quantitative-easing oriented (e.g., bond buying or money printing) than it has been. In my opinion, the article suggested that the Fed may act at next week's meeting rather than wait for the following one, on Sept. 13.

 

For what it's worth, The New York Times also ran a story on the same subject. As a close observer of this sort of news, I can't recall a time when both of those papers prominently featured gossip about what the Fed might do next. Obviously, the pressure on the Fed is heating up, just as it is on the European Central Bank, but it remains to be seen if Bernanke has enough imagination to do what he is supposed to believe he should.

 

Their coup runneth over

The faith of those stock bulls who think the Fed has their backs has buoyed the equity market through a host of disappointing earnings reports, at least when one looks at the next couple of quarters. When I saw the Apple news, I assumed it ought to be enough to "bust the tape," which would, of course, increase the pressure on the Fed for easing. However, in perverse fashion, the Pavlovian salivation about said easing tends to keep stocks from reacting to the bad news that actually does arrive.

 

The question for those who are short is: "Will we get a nasty plunge in the tape before Bernanke actually panics, or will he ease before that swoon occurs?" I wish I knew the answer, but I don't, although my suspicion is that bulls will need to be tested a bit more before they get their "coup de whiskey," as the Fed boys of 1926 called it.

 

The reason I keep rooting for the Fed to reach deeper into its bag of tricks is because I know that it will eventually, and I would just as soon get it over with. If we are ever to have a chance of cleaning up the mess in this country, we need to completely discredit the Fed and the concept of fiat money managed by a politburo.

 

The sooner things get worse, the better

 Getting to that juncture will precipitate quite a crisis, which will also create the pressure we need for the losers in Washington, D.C., to finally stop worrying about their own re-election and do something for the good of the country.

 

Unfortunately, that can happen only in a world awash in fear. Having Treasurys and the dollar under pressure due to recognition of the failed strategy of printing money is going to create the exact backdrop we need. That's getting way too far ahead of myself, of course, but we can only hope we get there as soon as possible.

 

At the time of publication, Bill Fleckenstein did not own or control shares of any company mentioned in this column in his personal portfolio.
33Comments
Jul 27, 2012 7:49PM
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" If we are ever to have a chance of cleaning up the mess in this country, we need to completely discredit the Fed and the concept of fiat money managed by a politburo."

 

No truer words were ever witten.

 

Congress, the fed and Obama are our enemies. We are going to have to revolt against them.

Jul 29, 2012 9:18PM
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The FED has completely disrupted the concept of a "Free" market. I am not sure anyone really knows what the value of stocks should be right now.

Enough meddling and stimulus-Let the market work.

Jul 28, 2012 10:23AM
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I keep wondering if the media looks for sensational stories. We purchased our house in 1976 and paid 8 3/4% for thirty years with 1/3 down. That was a bargain interest rate in those days. Now reporters write that 7% is unsustainable for any economy. Unemployment was high back then with all the solders returning from Viet Nam. I could do with a little less doom and gloom. What is the difference between then and now? We survived and put three kids through college.They don't owe a dime.  The trick is not to buy a house that is: more than 2 times annual income;;save 10% and pick up a second job to pay for any emergencies or special treats. We drove all our cars for at least 10 years. Yet, we pretty much ate whatever we wanted and had nice clothes and a comfortable existence.. The problem is that some people's expectations are unrealistic.
Jul 27, 2012 9:57PM
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JFK signed an executive order to disband the Federal Reserve.  He was executed 2 months later.  Coincidence?
Jul 28, 2012 4:19PM
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Great article.

We will get no handouts.   Green companies will continue to get millions of our tax payer dollars, but the people that could use help will get none.

 

Actually I am tired of open borders that are cutting deeply into our own resources.  We need someone that will close the border, now.

 

We have no money because we give it all away... Overseas, and to take care of the illegals coming across.

 

Time to stop... Take care of Americans first.

Jul 29, 2012 6:33PM
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Great article Bill, and the printing presses will continue in this election year!  Meaning markets continue to go sideways because tax armageddon comes at the end of the year!  Fed is inept, Congress does nothing to very little, global markets get wrung out, and your gains (if any) get tax increases for all.  Yikes!
Jul 28, 2012 6:42PM
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"If we are ever to have a chance of cleaning up the mess in this country, we need to completely discredit the Fed and the concept of fiat money managed by a politburo."

 

Thank you for writing that, Bill. 1,000 points UP in about 3 weeks without solid substantiation. Hopes and begging for stimuli are not good reasons for 200 point days. I've been reading up on the LIBOR scandal. It seems to me that Wall Street would be far more cautious about that then looking to Ben for more cash. The scandal ran mainly from 2005 to 2009, or while Phil Gramm (author of the Gramm Leach Bliley Act that gave the financial sector the right to collude) was at UBS (a major bank named in the scandal). Even Bernanke and Geithner are not free from this.

 

Commonsense thinks these increases are last minute grubber grabs and we have days to weeks before that major retracing occurs.

Jul 27, 2012 9:04PM
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You are kidding, Bill.  The "markets" have not a thing to do with this and know that this is your livelihood.....the markets are corrupt.  Analyze whatever and "fear" is  not there for most of us as we do not invest and will not.  This is an "entitlement" nation, now.  Cite all the articles you want to... it will make no difference.  Do you actually think that the last two generations are "investing" anything?  They do not work and have exhausted their parents in support.  Who cares what the dollar does?  The "markets" are a con pure and simple and entirely controlled.  It is what you brokers can "con" out of it.  Now, you have what you wished for.... a "weak dollar" and incredible inflation.  It is coming.  
Jul 30, 2012 1:53PM
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The current market bubble has little to do with the economy and everything to do with the expectation of free money from the Fed and the ECB. But the money is not free - it is a dilution of the money supply from printing "money" and will only lead to inflation.

Baaah!

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Bill it is obvious to anyone that the Federal Reserve has been dong stealth easing for some time now.

 

When you consider how bad the real US economy is as we have been trapped in a Death Spiral of Lost Jobs and an ever weaker and weaker economy. Our real unemployment rate is north of 25 percent. The retail sales are in a downward slump. And income has been dropping like a rock.

 

Add in the fact that the stock market has been losing money as unemployed or retired people have been living off their 401K pension plans and taking more money out than other 401K pension workers have been putting in and that participation in 401K plans is at an all time low.

 

Pretty much the Federal Reserve in a disperate move has been loaning banks money at zero percent for what like 4 years now? And the banks are using the money to keep the stock market from total collapse and lining the Wall Street banker's pockets with trillions of dollars.

 

The real solution to our economic woes is very clear. Use to be 30,000,000 new US jobs paying $100,000 a year would have gotten us out of the mess we are in now. As more high paying jobs have been destroyed and replaced with 1/3 the number of minimum wage jobs we will need 40,000,000 million new US jobs paying $120,000 a year to get us out of the deeper hole Bernanke in his misguilded attempts has dug for the US economy.

 

Pretty much we are all going to wake up one day say January 28, 2013 and have the Federal Reserve tell us that the western banking system has totally collapsed and that all our stocks and bonds and monies and house values have fallen to zero. And that the Federal government has started a distribution system of the limited resources we have left.

 

Pretty much will make the war time shortages during W.W.II look like booming retail times.

 

Of course the 1 percent super rich will not be affected by this sudden drop in wealth of all other Americans. Their wealth will increase as the government sales all assets it has to them for pennies on the thousands of dollars.

 

Welcome to the brave new world folks. It's going to be very different than the way we live today and it is coming soon.

Jul 28, 2012 4:21PM
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What an odd comments section.    First time here and all  I see are  ADs.... Silly really.     Don't you have a moderator?
Jul 28, 2012 12:38PM
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This is, hands down, the best article I've read on msn.money in five years.   He nailed it completely.
Jul 29, 2012 5:50PM
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Agree, but you still don't get it. You, I, gold-holders are unable to buy the types of Notes, Bonds and Contracts that constitute Inflationism. We're talking billions at a time. These would be- China, Morgan Stanley, numerous offshore entities. I've read now, not confirmed, that most of Friday's gains were short-position purchases. Think it through... the average citizen doesn't have the firepower to make the Dow adjust the equivalent of a trillion dollars. Next week, the Fed AND EUC Council meet to discuss the same thing. Both are committed to uphold their respective currencies, but Exchange positions are actually causing most of the economic turmoil. Penneys Kohls and Sears flat-out admit that the bulk of their sales are clearance. Target and Wal-Mart hammer foreign makers into deeply discounted prices that compromise the product itself. People know that and buy there as a last resort. After thirty, there is a significant drop-off in purchases because ancillary aspects of life get more costly. Check out actual stats... nobody is buying because there isn't much to buy. People are purging, which is a bad thing because after you throw quality out and buy a cheap facsimile, you literally stop buying at all (senior disease). Simply, Inflationism never worked and it isn't now. The trick is to catch the Inflationist sabotaging (like the LIBOR) and require some sort of forfeiture. That liquidates carefully crafted scams (like JPM). You don't want houses falling freely, you want derivative contracts and commitments to do so, by compromising what they are comprised of. If the Fed prints more cash, it doesn't lift gold, it sinks cash flow. Gold is where the scared run to, but odds are, we're never going to see nuggets used like dollars. Other things maybe, but gold-- no.
Jul 29, 2012 7:20AM
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Funny thing about fiat money... while normal people will slow down- the exact opposite of the intent of additional currency infusion- Inflationists will scuttle all they can to ensure what does get purchased will keep costing more. The pickled thinking process is this... the majority holders of things that are or can be liquidated (coin, cash, stocks, bonds, commodities) desire them to be worth more, so they create a catastrophe- like terminate the careers of half the workforce in the world. Some of those people move to another roles, start businesses or retire early. The others force a slowing in the economy. In order to recover, governments authorize additional currency printings and sell the issues. Those issues accrue interest. Inflationists cause the economy to continue to fail until there are several issues and plenty of interest. Then they right the economy and restore the commerce they purposely manipulated. People are happy to recover so they ignore the fact that it was manipulation that caused their woes and the fact that government now owes Inflationists- huge sums in principal and interest. These people still own what they hoarded, plus get the payments in the new economy. It's literally... a financial vampire cultivating a farm of bodies to drink dry when desired!

 

I do not recognize Bernanke, the Federal Reserve or Quantitative Easing. There was $50-60 Trillion in currencies worldwide just 15 years ago. That is what we must return to and tie it to a valuable and useful Index. Unfortunately, those in power want to make a World Currency, not because it is better for us, but easier to manipulate. Divest global... Close the banks. Save the world.

Jul 30, 2012 12:40AM
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remember ! ---- OBAMA 2012 - let's get the Alinskination on and rebuild a constitutional federal government.

 - DROP OUT TO RURAL LIVING AS CHEAP AS POSSIBLE
 - GET FOOD STAMPS
 - GET MEDICAID
 - SIGN UP FOR ALL THE PROGRAMS
 - START FARMING

bottom line:  Cut off their revenue and ramp up their expenditures until they collapse. 

The country dwellers will find a way to live on without bloated government.  When the urban entitlement class, gangs, and other human filth comes crawling out for food, they can work on your farm.

Jul 30, 2012 4:51PM
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THE MARKET IS UP 8% YTD.  It is so sad that the masses beilieve in any of this.  We are in a depression and just because we paid the Visa with the Mastercard does not mean that we are out of this mess.  We are deeper into it.  Why do you think they are going to war soon?  Our unemployment rate has not decreased at all.  They just rolled all the poeple without a job onto public assistance and those decent paying manufacturing/ service sector jobs are gone and will never return.  It is sad how so many people don't think for themselves and see through all the smoke screen.  EUROPE IS ON FIRE... Some type of large conflict is the only way out now...  At the very least it will provide the worlds governments with an excuse to say why the economy is so depressed.  Nothing has gotten any better and nothing will get better until we deal with real money and values.  Credit and consumerism have been a lie from the start.  It is doomed to fail it was never real.  YES YOU CAN BE OK FOR A WHILE WHEN YOU PAY YOUR BILLS ON CREDIT AND THEN PAY FOR THAT CREDIT WITH MORE CREDIT AND THEN PAY ALL THAT OFF WITH YET ANOTHER LOAN.  IT HAS TO FAIL THOUGH.  That is what this next war will be to provide a reason fro the high prices and shortages and the inflation.  It will be because of the war not the lies and manipulation.
Jul 30, 2012 11:29AM
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Apple Sucks it is over rated P.OS.  made in China.
Jul 28, 2012 11:16AM
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Here's my real comment:  Whats the deal with your spam filters.  Having seen the comments below? Jeez, only Nancy Pelosi would say they are working well.

BTW - its a "buy opportunity" for aapl.  Total Monday morning quarterbacking piece above!   
Jul 28, 2012 8:25PM
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I should like to see a return to a consensus that money ought to have a stable value, which as far as I know just does not happen with fiat money. BUT as the article says the author agrees with the thought that fiat money will be with us absent a catarophe laid at its door. One more economic catastrophe is not to be desired!
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Gotta tell you.  I've been fascinated by bubbles and the Great Depression for years, but had never heard the "little coup of whiskey" phrase.  What an education.  So what do we have going on now?  Mainlined Mad-dog 20/20?
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ABOUT BILL FLECKENSTEIN

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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.

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