Crisis of confidence coming soon?
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 other news was the prediction from Gene Munster, an Apple (AAPL) analyst at Piper Jaffray, that Apple would be the first trillion-dollar company, by 2014. What I found particularly humorous was that, while the article I read acknowledged that the last time this subject came up (back in 2000) the "dead fish" had predicted Cisco Systems (CSCO) would be the first company with a trillion-dollar market cap, that error wouldn't stop Apple from achieving the valuation set by Munster. (At the time, I wrote an article explaining how preposterous that notion was.)
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I would just like to go on the record as saying I think it is virtually impossible for Apple to reach a $1 trillion market cap by 2014. I don't think that the level of sales and margins required to support that valuation in a nonlunatic world can be achieved in the next few years.
People seem to forget that the law of large numbers is quite potent. It is simply much, much more difficult to grow and maintain earnings when a company is very large. If you don't believe me, just ask Warren Buffett. He points it out all the time (we may disagree with his political views, but the man can analyze businesses).
I have absolutely no position in Apple, but given the points I recently made about the company, it appears that the stock is trading just as it would if it were making a top. I am not interested in putting up money behind that statement, but we have certainly seen a lot of good ideas overdone to the upside in the past decade and a half, and it seems Apple might be among them. (Again, Apple zealots take note: I have no dog in this fight, I'm just making an observation.)
Lack of confidence is no game
Lastly, I want to report on my attendance at the spring Grant's Conference in New York and the stellar lineup of speakers who were there. I was surprised to hear so many references -- particularly by Stan Druckenmiller and Paul Singer -- to some sort of crisis of confidence that lies ahead. Both of them (and others) feel that the endgame for all the money-printing we have seen is that people at some point will lose confidence in the dollar or the bond market. It's roughly equivalent to what I have referred to as the "funding crisis."
Many people who have grown up knowing only Alan Greenspan or Ben Bernanke at the helm of the Federal Reserve cannot conceive of a market losing confidence in central bankers. But those of us who have been at this long enough (or are students of history, or both) have seen or read about it happening many times in the past, and this is where Druckenmiller and Singer believe we are headed.
It is not possible to know when that might occur, though Druckenmiller made an interesting case as to why it could be as early as 2013. As I have said, the sooner it happens, the less damage will have been done to the U.S. economy in the long run via misallocation of capital and too much debt.
Tried and true, but still trying
I was also interested to note that those two gentlemen, and others, feel that the best way to protect oneself from the predicted outcome, whenever it occurs, is to own gold.
Of course, as we have learned, that does not mean gold will go up every day. On the contrary, the nature of the gold market means having the courage of your convictions tested regularly, as we have since gold hit its high in September 2012.
It is pretty obvious that Europe is headed to another round of quantitative easing, as Spain is coming unglued. I believe weakness in the U.S. stock market and economy will push the Fed toward QE3 within the next couple of months.
So, despite the recent view that central bankers are all on hold, I expect that will change quickly. Another week of stock-market declines and all the Goldilocks believers who were feeling so confident a week or two ago will be begging Bernanke to print more money.
At the time of publication, Bill Fleckenstein owned gold and silver.
I wasn't sure before but now I'm convinced that the labor department is using "fuzzy math", they really need to review the formulas being used, they don't reflect the true number which is closer to 11.5%. I understand why they don't want people to know the actual figure, Obama could never get reelected. I hope the American people are smarter than they were in 2008, if not, you will see unemployment break 16%. When President Romney takes over I believe there will be more businesses hiring and the rate will go down precipitously just like when Reagan was President.
GOD BLESS AMERICA! Please, Please think before you vote!
To blame the democrats for starting the whole financial crisis because the Clinton administration "forced banks to loan to people with bad credit" is way oversimplified and misleading
That is exactly what happened banks loan people with bad credit (US Treasury T-bills) a lot of money $15 trilion dollars said person could not pay back the money hence the run on the US banks which spread world wide.
It's going to happen again soon. The Federal Reserve is going to get very tried of loaning fake money to Uncle Sam and shut the door on us borrowing money.
After all they want to loan everyone's money and if they keep giving the US treasury money and get nothing back in return as the US is now bankrupt.
Considering Buzz Bernake printed over $9 trillion to bail out US banks and $5 trillion to bail out EU banks and who knows how much to bail out the Japanese.
There is going to be a day of reckening and that day will be soon.
Comparing President Obama to Jimmy Carter is a severe insult to Jimmy Carter.
Who would have thought we could get a more idiotic, disconnected, empty suit of a man than George Bush?? Well, we got one! All the stupidity multiplied by ten. And even worse, this guy is the absolute king at straight face lying, arrogance, abuse of power, opportunism, pandering, divisiveness and hypocricy.
If he wins a second term, what make anybody think he'll THEN start taking responsibilty for anything that goes wrong?
"Pass this bill now!!!" yeah right you d-bag. Can't even get support from your own party on any of your proposals. Oh yeah, lets have your surrogates play the race card over and over and over again every time you don't get your way. Keep sending your POS AG Holder to harrass folks that call you out.
Then, we stop Social Security entirely for those with AGI's over $250,000 or Net Worth over $5 Million (maybe $10 Million, since a Million is no longer worth that much). We could also means test Medicare. Why should those with lots of money get lower Medicare insurance? Yes, they paid in, but they got a lot by being in a free enterprise system--a little payback is something mentioned in the Bible, if I remember correctly. But then, I don't claim the religiosity most Republicans do.
First of all I don't get my facts from Fox News, but it sounds like you take your direction from the democratic national committee. I don't know what you have been watching but Obama does blame everything on Bush. I never meant to imply that the democrates were totally responsible for the crisis I was only trying to say that the Dems were also involved. If you think that spending money like we have all the money in the world is the way to solve problems then Obama must be the greatest president ever, but there is more to being agreat president than that it involves making tough decisions not just playing to your base. I don't know were your getting your facts but the banks were forced to do alot more than just offer less stringent credit and down payment requirements for working and middles class. You are right that Alen Greenspan deserves alot of the blame. As far as the deficit is concerned Obama has added more in 3 years than Bush added in 8, but of course that is Bush's fault. As far as the wars are concerned why hasn't Obama ended than like he said he would? You say I must be on drugs because I think Bush was a great president, but can't I say the same thing about you and Obama. I could kept going but I need to get up early for work. One last thing, you say Obama dosen't blame Bush, but how many thing of any significance can you name that Obama has accepted resposability for?
Re: jmar93's Reality9999,
To blame the democrats for starting the whole financial crisis because the Clinton administration "forced banks to loan to people with bad credit" is way oversimplified and misleading. First, it simply pushed for less-stringent credit and down payment requirements for working and middle-class families, which was a good thing for a while until the greedy and corrupt elements of banks, Wall Street, and mortgage brokers got involved. In fact, there was bipartisan support for many of the things alleged to have led to the crisis, even the Gramm-Leach act repealing parts of Glass-Steagall. Instead of believing all the simple-minded things fed to you by Fox News or the right-wing nuts on the radio, dig a little deeper into the facts. The things which eventually led to the crisis are complex, but the whole speculative frenzy in many respects was probably a child of deregulation and layered irresponsibility going back to the early 1980s. If you're looking for who to blame, it's a better bet the list should include the Federal Reserve and Alan Greenspan, home buyers who took advantage and bid up the prices of homes excessively, Congress, real estate agents, mortgage brokers, Wall Street firms, the Bush administration (which failed to provide needed government oversight by that point) and a collective delusion. And if you're looking to blame a political party, remember Republicans have been the biggest champions of deregulation for 30 years now. The U.S. economy is enormously complicated, don't oversimplify things with "it was either our team or their team" thinking. You say Bush was a great president? What drug have you been taking? Also, Obama doesn't blame Bush for everything, that's just what you and your cohorts like to think. You should stop blaming Obama for everything, when your Republicans block and obstruct everything he's tried to do to heal the economic mess he inherited, no doubt with the hope he'll be blamed.
Let's not forget the deficit, which got way out of control thanks to Bush starting his illegitimate Iraq war for the benefit of corporations, and giving tax cuts to millionaires and billionaires decreasing revenue while running up trillions, while the middle-class suffered and made less and less, preventing even more potential tax revenue. One thing's for sure, 30 years of BS "trickle down economics" in reality turned out to be "trickle up"- and the American people were soaked, including the ones who are still flimflammed.
PRINT! PRINT! PRINT! PRINT!
- How's eveything here Ben?
- It's all fine Mr President! I received tons of paper sheet and thousands of gallons of ink.
I can print money forever!
Will I get my helicopter? I want to ride in an helicopter!
- Sorry Ben, but I can't. Budget cuts, you know. But I could lend you Marine One for a while...
PRINT! PRINT! PRINT! PRINT!
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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.
[BRIEFING.COM] The stock market punctuated July with a broad-based retreat that sent the S&P 500 lower by 2.0% with all ten sectors ending in the red. The benchmark index posted a monthly decline of 1.5%, while the Russell 2000 (-2.3%) underperformed to end the month lower by 6.1%.
To get a better feel for what led to today's retreat, we'd like to look back to Wednesday, when the market had ample reason to rally, but did not. Instead, it ended basically flat after a sloppy day of ... 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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