A market with a split personality

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.

By Bill_Fleckenstein May 4, 2012 3:51PM

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.


One came from the Australian central bank, which cut its interest rates by 50 basis points (versus expectations of only 25) because the economy was "somewhat weaker" than forecast. Most people believe that Australia is doing quite well, and it certainly is on a relative, if not absolute, basis. But the speed at which the Reserve Bank of Australia acted shows how little tolerance there is for any slowdown anywhere. (Australia does have rates higher than most, but the point survives.)


(Column continues below video.)

Still working on it


A sign that the economy might be "too cold" rather than "just right" was the midweek ADP employment report, which showed only 119,000 jobs created versus a forecast of 170,000. Obviously, this suggested that this week's nonfarm payroll report, released after this column's deadline, could be on the weak side. (Editor's note: Friday's payroll report was indeed weak, with hiring slower than expected. Read a full report here.)


On the other hand, we all know the ADP report is not always a perfect harbinger of the nonfarm payroll report, which was due out today (after this column was written). If it is right, and the private sector was on the light side while the public sector is shedding jobs, then the government data could be a decent-sized disappointment. (But it is hard to have a big opinion in advance, because of how the Bureau of Labor Statistics data are put together.)


We're owe in it together


Throughout the history of the world, the currency printing press was often not available to solve crises, and in those cases where it was, it was usually abused, which resulted in inflation, currency/bond market collapses, etc. However, as long as people believe -- as they currently do -- that problems can be solved via money printing, why would anyone ever want to take any pain?


Europe is dealing with all of that right now. The Germans are doing fine and don't want to use the printing press, while those who are suffering (Greece, Italy and especially Spain at the moment) don't see why they shouldn't be allowed to. In the end, I think the majority in Europe will win, we will see more money printing and the experiment with austerity will be over.


Here in America, of course, we don't experiment with austerity. We just print money and roll out government bailout programs. I believe we will not make any attempt at serious austerity until the printing press is taken away, via the bond market or currency market. (This is what I call the "funding crisis" ). 


Having said that, we have the best brand of capitalism, and despite government attempts at cronyism and socialism, the creative-destruction process is allowed to work here better than most places. That has helped to some degree. But I expect to see the printing press trump austerity until it is no longer a viable option. 


Mining stocks second that emotion 


Regular readers know I believe in gold and gold-related ideas as protection against the constant money printing, and this week the last two major gold companies reported their earnings results: Barrick Gold (ABX) and Yamana Gold (AUY). Both were in line with estimates, or even slightly better, which means that all the major gold mining companies made their numbers or exceeded expectations, with the exception of Goldcorp (GG).


Thus, it wasn't horrible operations this quarter that have seen mining stocks get destroyed; it is purely market sentiment. That will change when it changes, but it is a good example of the huge role psychology plays in where stocks trade, both on the upside and the downside.


At the time of publication Bill Fleckenstein owned stock in Yamana Gold and Goldcorp, as well as gold.

May 4, 2012 8:42PM
More Bull S%$t by the manure entrepreneurs who write this excrement,  The market is not too hot, too cold or just right.  It is just too rigged.  Too all of you free market fantasists tell me, what percentage of the trading that occurs each day is actually done by real humans?  Ever hear of algorithms and high frequency trading.  Scoop the wealth out, excrete the manure back to you and societies across the globe.  (You chose 85%, 50%, 25%?).  Wake up MORONS!!  
May 4, 2012 9:54PM

This world wide inter related economy has a thousand moving parts, most of them bad.  It also has lot's of cash waiting on the sidelines for something really positive to happen to point the way out of the mess.


But, unfortunately, there are very few ways to clean up the balance sheets of cities, states, countries, individuals, banks, investment brokerages, insurance companies and way too much debt floating above all of it like gasoline. One spark from any source and we all get burned.  And it's simply impossible to know where that spark will come from, so, we tip-toe into the future hoping no one does something stupid.  

May 5, 2012 5:29PM

the stock players are now careful about insider trading, the public is not into buying non USA manufactured items, and if they buy, the moneys go to outside USA banks. Out production capacity has dropped, more junk is put into cars so as to jack up prices. The taxes on properties is skyrocketing, more dependence on public assistance, lots of fake disabilities, energy prices are out of the world, And if any help for the American worker is put into action, the money hungry vultures destroy the programs. This looks like an inflationary depression   and the dollar leaving the USA and not returning.


May 5, 2012 1:38AM

Let's not leave out the 300 pound gorilla in the room- the reason for increased volatilty and cash parked on the sidelines:


Both the smart money and those in the trenches are waiting to see what happens in November.



May 5, 2012 8:24AM

There is some 'gravity' to what Bill is saying.  Noone is interested in what 'stocks' are doing as that is obvious 'manipulation' and said and done.  This will continue with the 'button' pushing in legalized arbitrage ... and that is all it is. I get a 'kick' out all this with news that 401K's and pension plans have made money.  It is a total 'con'. 

May 5, 2012 4:45AM

Ah, a split personality....? I might agree with some of that...

On one side of the split, is the "PUMP" group...

With the other side of the split, we have the "DUMP" group....

Between the two, they work together to steal investors money...

This pattern has been happing weekly for some time now...

with No stocks changing hands,  ...lol


May 7, 2012 1:53PM
usual suspects, how about anybody that needs to get elected/reelected, you can start there.  Doesn't matter if they are democrat or republican, they both print with abandon.
May 11, 2012 11:15AM
I agree with a lot of this article, except where he says "we have the best brand of capitalism".  Really?!?  I don't know how anyone could even quantify that statement because when the gov't is funneling trillions of borrowed money into an economy that's still flat-lining, something's not right.  Capitalism....where companies are "too big to fail" and where the gov't has mailed out free (borrowed) money "stimulus checks" (Bush 2).....and where we allow illegal aliens to come in and do the work "that Americans won't do" (while they're home unemployed and watching Judge Judy and getting a check every month)  Where companies won't ever raise workers' wages, but expect the gov't to keep printing money and distribute it via EBT cards and 100 other forms of free (borrowed) money, because we want American citizens to retain their buying power, as long as employers aren't supplying that buying power.  Freakin' ridiculous....."best brand of capitalism" HA!
May 7, 2012 4:29PM
reality9999: He said people, you said polticians. Politicians are puppets, not people. 
May 7, 2012 11:39AM
Which people currently believe money printing is the answer? Name a few.
May 7, 2012 3:59PM
Same Old -----Same Old---
Bill Fleckenstein has only a one track mind.

Every article he writes says basically the same.....To much money being printed--Inflation is coming---
Was it chicken little that the sky is falling???????????????????

May 7, 2012 4:03PM
So where is that jobs bill and where are all the jobs that all those useless Republican and Teabagger imbeciles in Congress promised? Fire the whole lying Republican Party in 2012!
May 5, 2012 4:19AM
I just threw up in my mouth a little bit
May 7, 2012 4:05PM
Austerity and Republicans are dirty words and total failures!
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Image: Bill Fleckenstein, MSN money

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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[BRIEFING.COM] The stock market finished an upbeat week on a mixed note. The S&P 500 shed less than a point, ending the week higher by 1.3%, while the Dow Jones Industrial Average (+0.1%) cemented a 1.7% advance for the week. High-beta names underperformed, which weighed on the Nasdaq Composite (-0.3%) and the Russell 2000 (-1.3%).

Equity indices displayed strength in the early going with the S&P 500 tagging the 2,019 level during the opening 30 minutes of the action. However, ... More


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