Market's identity crisis marches on

Wall Street's apparent strength is still just as illusory as it was this time last year. And we know how that movie ended. Think 'Jekyll and Hyde' rather than 'Hoosiers.'

By Bill_Fleckenstein May 3, 2013 4:17PM

Canary © Feng Wei Photography/Flickr Open/Getty ImagesFor years, Amazon.com (AMZN) always rallied after release of the company's quarterly results, regardless of what those results were. After starting out with its usual upside performance following release of results for last year's fourth quarter, however, the stock quickly gave up those gains, and more, before moving sideways. Thus, I was curious to see what it would do when the company announced its first-quarter earnings on April 25.

 

I had a feeling that the stock might be a canary in the coal mine for the stock market at large. It was just a guess on my part, and a pretty tenuous one; but to my way of thinking, Amazon essentially has no fundamentals, since there has been no way to handicap what might make the stock go up or down.

 

Amazon discovers gravity

In fact, the stock did decline on April 26, to the tune of 6%, and looks to me like it may have "failed." In addition, given the proximity of the all-time high for the Standard & Poor's 500 Index ($INX), I thought perhaps a failure in Amazon might be an indicator of one for the S&P and the Dow Jones Industrial Average ($INDU). (The Nasdaq Composite Index ($COMPX), though, doesn't look the same.)

 

Again, this is a pretty thin reed, but when it comes to trading (guessing), you have to have a bit of imagination. I am, therefore, watching the stock market a little closer than usual for a chance to make a little money on the short side. But I will have a very tight leash, as bad news has not really worked as a catalyst for equities to decline.

 

Customers who bought this item also bought . . .

For example, I was briefly short some equipment stocks a couple of weeks ago because I expected Intel (INTC) to cut its capital-expenditures forecast. It did, and I had a small victory, but that was because I was quick to cover those positions.

 

Meanwhile, KLA-Tencor (KLAC) last week had to reduce its guidance for the second quarter (as a consequence, no doubt, of Intel's reduced capital expenditures) and shares declined 8% or so when it reported. However, two of its competitors, Lam Research (LRCX) and Applied Materials (AMAT), both ignored the news.

 

I can see how we could potentially be experiencing a failing rally in the stock market, which might be a big deal. But trying to make money on the short side is still nearly impossible (though obviously if we do see a failed rally, that would soon change).

 

Earnings season and macro data have been anemic at the margin, but rather than disappoint the bulls, all they have done, for the most part, is assume that the Fed won't be stopping any of its money printing on the early side, as many had been predicting. And yes, this is the exact movie we have seen for three years in a row. But none of those things seem to be a factor.

 

The only substitute is sanity

If there has been one constant in the money-printing binges we have seen since the mid-1990s, it is that when stocks mindlessly climb higher -- whether it be 1998-2000 or 2004-2007 -- nothing else seems to matter.

 

This is particularly maddening if you concluded, as I have, that you weren't sure money printing would create activity in the gross domestic product (and thus chose not to want to own stocks) but were certain we would see money printing (and chose to own gold.)

 

Gold has an amazingly powerful set of fundamentals, but that has not mattered for a couple of years. Meanwhile, the stock market fundamentals are awful, but that has not mattered either. That will change; we just don't know when.

 

On that subject, I was recently sent a quotation from Paul Singer at Elliott Management that was so perfect I thought I would share it here:

 

"The world is on a seemingly one-way trip to monetary debasement as the catchall economic policy, and there is only one store of value and medium of exchange that has stood the test of time as 'real money': gold. We expect this dynamic to assert itself in a large way at some point. In the meantime, it is quite frustrating to watch the price of gold fall as the conditions that should cause it to appreciate seem more and more prevalent.

 

"Gold may not exactly be a 'safe haven' in the sense of an asset whose value is precisely known and stable. But it surely is an asset that, in a particular set of circumstances, becomes a unique and irreplaceable 'must-have.' In those circumstances (loss of confidence in governments and paper money), there are no substitutes, and the price of gold may reflect that characteristic at some point."


King World News
In my latest interview with Eric King, I go into detail on the gold and silver markets, as well as mining stocks. Interested readers can  listen here

 

At the time of publication, Bill Fleckenstein owned gold.
58Comments
May 4, 2013 3:48AM
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The difference between hoarding Gold or Dollars, if things really collapse, your dollars will literally have no value. Eventually, Gold will always have value, regardless of any type collapse. History has proven that for thousands of years. Does that mean current Gold Prices represent true value. Well it's far more valuable than what trillions of new fake currency should be. Thing is, nothing today is what it should be in a free market. A manipulated Fiat Money System in which all the Major Powers are colluding together to protect the super Rich is what we have. Never mind all the crumb droppings that the rest of us see, that's just the portion they leave so us regular folks won't start a revolution.

They say perception becomes reality and for now, the perception is that you can't fight the Global Feds. How can the average joe/sally fight trillions in fake money which goes right back into the Stock Markets. Gone is fair price discovery, for now. Unless there is a panic sale and resulting huge Margin Calls, there is no telling how far this bull might run. Shorts are clearly being set up to fail while longs have the Global Feds blowing hurricane force winds at their sails. We all know that eventually Gravity Must take over, it always does. The problem is since we are in uncharted waters, it's almost impossible with current released information for us regular folks to predict the epic moment of Fiat Failure.
May 4, 2013 6:59AM
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The Fed is not a governmental body.  It is privately owned.  It's job is to turn your money into their money.  Most people believe it is a governmental agency.  That is simply not so.  It is, as Greenspan said, "accountable to no one." 
May 4, 2013 3:55AM
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Things of note:

The Fed actually makes a profit on buying Bonds with fake money. As crazy as this might sound, the Fed gets a windfall from it's massive balance sheet. It made about 60 Billion in the first 3 quarters of 2011 and about 70 Billion in the first 3 quarter of 2012.

The Global Powers are paying far less on Government Debt than what would be normal in a free market. That has saved for now, Global Governments billions if not trillions in total.

Corporations are also paying far less for Debt than what would be normal in a free market. That in turn is funding the ability for massive Stock Buybacks.

Yet the average joe/sally is getting nothing back but the barking Dog.
May 3, 2013 7:14PM
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Not that I dislike Gold, Mr Fleckenstein, but the real challenges that arise in your
"end of the world as we know it;" scenario will still be what the medium of exchange
will be....Dollars, Euros, Yen, Wampum or ???  Somehow, I cant envision paying your
barber with $20 Libertys and expecting him to be able to make change....


May 3, 2013 7:49PM
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A wheelbarrow full of Obama dollars for a loaf of bread
May 4, 2013 5:19AM
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The elites and banking cartel are drawing in the potato heads that see numbers go up buy in the illusion it's getting better(not) so your capital is drawn away to the coffers of the elite. There will be some tears from crash we'll probably see Cyprus style raiding of pension funds and bank accounts to cover bank losses' and pension bailout fund(it's insolvent) lets' not leave out capital controls. You can only withdraw so much of your money at a time. Many reading this will be in the street or casualty of mass riots. That will happen when all pension money stops disability payments stop welfare/social services stop. Shadow Government Statistics Analysis Behind and Beyond Government Economic Reporting at is worth looking at. This summer and fall will be filled w/uncertainties'

One China is holding a financial summit including BRICS w/could be official announcement of dropping USD as world reserve currency. There storing vast reserves of gold w/BRICS you might say their heading for the exit. We're cooked.

May 3, 2013 7:52PM
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Why do they keep posting his info-mercials on precious metals?
May 6, 2013 3:00AM
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"On the night of Sept. 11, as the Obama administration scrambled to respond to the Benghazi terror attacks, then-Secretary of State Hillary Clinton and a key aide effectively tried to cut the department's own counterterrorism bureau out of the chain of reporting and decision-making, according to a "whistle-blower" witness from that bureau who will soon testify to the charge before Congress, Fox News has learned." ---from Fox News

 

Looks to me like this bitch is toast.  If it turns out she was responsible for the death of four Americans by cutting off military support... (just to prop up Obama's campaign?!?!) , there should be criminal proceedings. 

 

(Note: msn won't report about this so I decided to bring it up here....)

May 4, 2013 2:09AM
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I do agree with Bill on the fairy tale market fluff but gold is also overvalued and hyped. When the financial crash does come, all that matters will be food, water, basic essentials and a means to defend what you have.  Gold has value only if there's valid currency to buy it with or someone willing to trade their survival goods for it, otherwise it won't feed or keep you fed, warm and alive.
May 4, 2013 1:48AM
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History repeats itself and I believe we are at a historic crossroads.   Gold became an asset in the 70's. One must consider that those merits have never been questioned by anyone.  As for myself I purchased a large amount of gold in September of last year and I believe this was a wise decision as history will soon repeat itself.

May 4, 2013 10:50AM
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They really should BAN shorting. The idea anyone can manipulate the markets by deliberately taking a contrarian role is just one of a number of factors in market volatility without a reason behind it. Why don't financial "analysts" discuss this simple fact? Shorting harms companies and are how day traders and financial "analysts" ruthlessly manipulate the average investor. 
You can vote your faith in a business success by either LONGING their stock or abstaining from owning it. 
May 4, 2013 1:26AM
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It is all illusory...the "markets" are a joke and have been for many years.  They "prop" themselves and the same few are doing this.  Metals are going the same direction, down.  It is an effort to be on the "winning" side.  There is no "winning" side, now.  This works in conjoining both and do not believe they do not work in conjunction.  It is a "con" game.  We will be a barter nation sooner than you think.  You work and you get paid for same work back as in offer.  Forget the rest.
May 6, 2013 10:48AM
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The retailer hasn't got the money to invest in the stock market, so this time around the people that are going to eat their financial lunch are the big boys. Just watch what happens when the big boys get hit. The fed and our government will use the taxpayer and the American people to cover the big boys financial loses. The greatest enemy of the American people is their own government (the president, congress and the fed).
May 4, 2013 2:28AM
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I believe the best strategy for playing the markets is one of "Laissez-faire", which in English means "hands off".   This has worked for me historically and I have accumulated a large diversification of portfolios over the years.
May 6, 2013 10:26AM
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It's kinda funny how back in 2009 when the sit hit the fan and Fanny+Freddie with the help of the government and the market destroyed pension funds all over the world..I guess I mean it's funny how the world so readily forgets the mayhem and heartache we brought to them.  Now the Fed is doing the same thing creating monopoly money and the same marks are lining up to be taken..I guess it's true..There really is a sucka born every minute..
May 6, 2013 9:53AM
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The Fed is a private institution whose chairman is government appointed, and appears on a monthly basis before congress to talk about monetary policies, answers questions and criticism. Weird.
May 6, 2013 10:10AM
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If there is so much gold and it's so worthless, why has there NOT been a independent Audit of US Gold for well over 30 Years. Thousands of years of history has shown what value it has to humans regardless of if folks are starving. Folks will take gold over any other currency when the Epic collapse hit's full stride. It matters not if that day is this year or 5 years from now. Total Diversification is the only way forward.
May 6, 2013 9:59AM
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The value of gold is measured in US dollars. When the market collapses, and US dollars are worthless, how will the value of gold be measured? Vitamins?  Calories? I hear gold is high in minerals.
May 6, 2013 3:09AM
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WHY is gold going down? Fleckenstein still fails to grasp and fails to relay to the investor that the real reason for the decline of gold is that governments are dumping it to pay off their deficits. Gold is going to $800 an ounce. The real safe haven left is to invest in companies with good fundamentals. It's time to return to our roots and be Americans again who believe in free enterprise. Not some kind of scumbag shortseller who deliberately rants and uses his blog to crush the price of something he is shorting or even worse put people into gold when he finally admits "Gold has an amazingly powerful set of fundamentals, but that has not mattered for a couple of years." What fundamentals? If you knew it was irrelevant as an investment then why did you encourage us to buy it weekly for several years? Fleckenstein, you are unAmerican and a shameless shortseller. Don't mention gold again until it's $800/ounce. Short that. Sucker.
May 3, 2013 11:28PM
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At times such as this I am reminded of Louis the whatever's finance minister...he built this chateau - I saw it when we went to Paris - it even outshone Versailles, where the king lived. In the end, Louis clapped him in irons.
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ABOUT BILL FLECKENSTEIN

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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