3/16/2012 7:27 PM ET|
A rally built on fairy tales
As stock bulls hold out for 'happily ever after,' the setup for precious metals and miners could lead them into promising 'just right' trading territory.
We appear to have finally reached the end of the latest chapter of the Greek debt-restructuring saga. The news on March 9 was that Greece had managed to reduce its obligations and extend its term structure via the proposed debt exchange, which obviously reduces short-term pressures and fears of a "messy" default.
That news, however, was sort of a nonevent for European debt and equity markets, while our stock market was boosted by the March 9 jobs number, which, at 227,000 jobs added, was about 17,000 higher than expected. In addition, January's total was revised upward by about 41,000 jobs.
I continue to believe that the employment data look better than the underlying reality, thanks to the fact that the seasonal adjustments can't possibly capture this winter's weird (and warmer) weather. That is in addition, of course, to the usual questionable assumptions that the Bureau of Labor Statistics uses in its calculations.
Sine of things to come?
Some of that "underlying reality" came to light the night before (March 8), when Texas Instruments (TXN, news) lowered its guidance, although the market completely ignored that. It is just one company, but I bring it up because I think it demonstrates that expectations are too high. I would not be surprised to see other companies forced down the same path, and I have a hard time believing that stocks have discounted that eventuality.
This week brought more optimism, with a liquidity-fueled, momentum-driven romp in the U.S. stock market on Tuesday. The only skunk at the garden party was China, as its equities were clipped for 3% or so on Wednesday after Premier Wen Jiabao offered comments following the annual National People's Congress. Wen made it sound like there would be no additional easing anytime soon -- which is preposterous. As soon as we see any material weakness in China, there will be plenty of money printing and reserve requirement cuts, but the day's focus was on the lack of Chinese liquidity.
However, commodity markets bore the brunt of the reaction during Wednesday's session, as equities are in "see no evil" mode. That is quite a contrast to August, when folks were terrified. I remember at the time trying to figure out some way to actually get long the Standard & Poor's 500 Index ($INX) for a trade, because I felt folks thought the world would end in Europe, while I believed the European Central Bank's long-term refinancing operations were the functional equivalent of money printing. I never could find a way to capture that idea, even though it turned out that LTROs obviously are money printing.
Swinging for the fences
I bring that up to show just how fast (i.e., six months) sentiment can swing, and how far, because I don't think we are past the point of seeing people panic about the problems we all know still exist. Those who find themselves superbullish on the U.S. need to consider what the economy and bonds are going to look like when interest rates start to rise as the bond market takes the printing press away from the Federal Reserve (i.e., we experience a funding crisis and have trouble financing U.S. deficits).
Granted, that is not today's business. Even though the bond market is acting like it actually may have made a peak, stock bulls are clearly focused on "Goldilocks" once again -- the idea of a "not too strong, not too weak" economy -- as they seem not to have learned that that story is a child's fairy tale, not economic reality.
Looking for a moment to be shortsighted
In a column about a month ago, I noted my concerns regarding the bond market. In the intervening weeks I have wanted to add to my small-bond short position, but I was afraid the stock market was ready for a tumble and wanted to see how bonds behaved in the wake of that. Obviously, stocks have not tumbled, so by being wrong about the near-term direction of equities, I not only cost myself a modest amount of money (with a failed S&P short), but I missed adding to my bond short.
At some point, the stock market will be under pressure and it will be important to see how far bonds can rally. I am really looking to press my bond short now. As a resident of this country with young adult daughters, I can't root for the funding crisis hard enough, since it will finally put the idiot central bankers in a straitjacket and force us to deal with our problems like grownups .
Gonna take a sentimental journey
The metals markets were tagged again this week, and gold stocks were even weaker. I believe we are near a moment in time where the metals and the miners will set up for a decent upside trade, just as we saw in December. Sentiment is back to about those levels, and I suspect the futures market liquidations have been of a similar size (though we won't have those data for some time). Ideally, we would like to see some sort of reversal in the metals and miners where they move up in unison.
In talking with my friend, the always insightful Fred Hickey, on Wednesday, I learned that he had recently sold a bunch of mining stocks. But based on the sentiment and data currently available, he felt he couldn't afford not to add back a chunk of what he had sold, which he did. He plans to buy more into any further weakness.
His feeling is that we have seen a large degree of giving up, leaving sentiment near where it needs to be to replace his holdings.
As for me, I haven't added to my positions just yet, but I am likely to do so shortly. Certainly, days like Tuesday and Wednesday are frustrating for gold bulls, when the world seems to say, "Who needs gold? We have Goldilocks." Even though believing in fairy tales is an absurd and failed investment strategy.
At the time of publication, Bill Fleckenstein owned gold.
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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The facts are we haven't addressed any of our financial problems in the US and so the entire system is a fairy tale, based on lies and deception. The solution so far has been to flood the stock market and banks with money from the local printing press and after this money is in circulation for a while causes inflation. You can only do this so long before people begin to riot when they can't afford to put food on the table.
Any realist who states the facts are called doom and gloomsters by short-term investors who don't care one whit about the long-term implications of anything. All they worry about is today and making a quick buck. But there is a cost to everything and we will have to pay it eventually. Unfortunately, the ones who profit from the abuses of the system won't be the ones bearing the brunt of the losses that will visit the rest of us later on.
Will someone explain how we are going to pay our national debt other than by monetizing it by simply printing money?
Any answers would be appreciated as I am an old fuddy duddy who was led to believe that debts were to be repaid.
" I can't root for the funding crisis hard enough, since it will finally put the idiot central bankers in a straitjacket and force us to deal with our problems like grownups" .
I was under the impression Mr. Bill was a dyed in the wool Democrat from his past articles. Today he turned Republican and wants the Gov't to actually grow up and start doing something about our debt.
We are so far in debt, I doubt if we can get out from under this past Administration's folly. We might be carrying suitcases of money down to the local bread shop to purchase a loaf of whole wheat.
I would like to see all trading stopped when the market is closed, I never understood why some are allowed to trade when the market is closed and most investors are not!
I am very skeptical of this market. What is really fueling a 13k dow? Manufacturing?, no. Speculation?, yes. I'm going to wait until there is solid ground to rebuild. I am not putting my financial trust in Beijing.
Its obvious why there is so much positive media on the economy when there is so little real "meat".
The mass media and the PTB that control them are hoping that they can make a self-fulfilling prophecy by turning sentiment around by publishing positive news and hoping that real people cause it to happen in the real economy, by spending more money, hiring more employees, etc. Very little real reporting goes on and most media is dependent upon government sources for information and if you cheese-off the gov too much, you get the info spigot turned off and will be at a disadvantage against other mass media.
The only problem with this strategy is that you can fool some of the people some of the time, but not all of the people all of the time.
Actually the bond market won't take away the printing press from the Fed. It will take away the ability of the Treasury to continue financing Federal deficits using borrowed money, by increasing the interest rate of Treasury debt. This will cause the same problem as in Italy now--higher rates make it impossible to keep financing more deficits.
However, that won't stop the Fed from printing money, even printing money to finance the Treasury. Only hope they get some sense down at the Fed (and some of the Fed governors do have some), and stop before they replicate the Weimar Republic's descent into hyperinflation. They probably will, but not before causing some good ole' "regular" inflation, enough to choke a horse or two.
you have heard it before and I will tell you again the stock market is a ponsi scheme no fairy tail about it. I think it was a man named Bernie that said that. Wall street is still selling CDO'S. Washington still has no regulation on the financial institutions. In the past 20 years the feds have removed all regulations that made banks legal. In 2008 the Feds bailed out the perpetrator's.The Banks,Insurance Co. and the Rating institutions. Nothing changed they still continue to sell bad debt CDO'S all over the world close to $700 Trillion worth. The banks will go under again. The dollar will lose it's cherished status with the global trading community. The fairy tail is there is no happy ending.
produce nothing -employ no one-service everyone-sell paper=succesful stock market trading. All the rest is scams -cons-manipulating other people's money.
KOO IS KOOKOO the dow at 16000 get real not with OBUMMER at the helm.
ITS 16 Trillion in DEBT and GROWING every day.
ANYONE BUT Obummer 2012
I am very skeptical of this market. What is really fueling a 13k dow?
Earnings. I don't understand why people don't get it. It's all about earnings. They have been fantastic for companies for years, now. The valuation multiples were held back for the past two years due to EU fears, Japanese earthquake, double dip recession, etc. But now, the market is fatigued by the same rehashed stories of "Greek debt" and are focusing on corporate earnings again. And corporate earnings have only been getting stronger. THIS IS WHAT STOCK PRICES ARE FUNDAMENTALLY BASED ON.
Who cares as all this 'propped' and 'fictitious'. What markets? No one here invests anyways as they cannot 'afford' to.. Sure, you are going to buy Apple @ 600 a share, Get outta here! It will remain like this as the obvious deflation of the dollar and the looming inflation crisis has been here albeit 'disgusied' by the same 'cronies' in 'concert'. Lord have mercy, get a clue!
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