Fleck on market manipulation

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http://www.siliconinvestor.com/insight/contrarian/

"But tell us what you really think. . . In other news, my friend Colin Negrych had an interesting take on the recent demise of the big hedge fund operators and I want to share it with readers as food for thought:

"Barton Biggs notes in his piece today. . .three of the best (proven longer term money managers - Julian Robertson, Stanley Druckenmiller and Nicholas Roditi). . .have quit the game. And he sees this development as a very troubling sign because all three investors are serious, intellectual, very bright people who are serious students of investing [who]. . .had employed all the tools and had matchless resources. He is right to be troubled. No one has yet written a serious article on "what is killing the macro hedge fund managers?" for the Wall Street Journal or the Financial Times. The answer is clear: We are in a period of unprecedented government intervention and manipulation of markets. . .in response to the near (and forthcoming) collapse of the international economic regime."

-- Swampthing (in@the.swamp), May 02, 2000

Answers

You bet it's irrational---that's why it's a bubble that will crash. Is there direct intervention? For sure. The market stats clearly show this. Does .gov know this? Obviously. Does Joe six pack know this? He doesn't give a damn. Could I care less if he loeses everything? Couldn't give a rat's ass.

There are lots of links. Try fiendbear.com to start.

Todd

-- Todd Detzel (detzel@jps.net), May 02, 2000.


I'm a big fan of Fleck. He called the post-Y2K "nuclear winter" IT purchasing slowdown many months ago and I'm think that we're seeing the beginnings of that with the current lower guidance from IBM, Microsoft, and Novell. If Intel follows suit (after some of their usual smoke-and-mirrors re current earnings, of course), that will pretty much nail the boxmakers and their associates (pretty much the whole InfoTech sector) to the floor.

Fleck also recently passed along a very interesting item from Jim Grant of Grant's Interest Rate Observer. Mr. Grant has some analysis which indicates the BLS productivity numbers which have juiced the indicators for the past year are about to provide a rather unpleasant surprise on May 4. Watch for them Thursday, 8:30 AM Eastern.

-- DeeEmBee (macbeth1@pacbell.net), May 03, 2000.


Chart of the week

http://www.bearmarketcentral.com/chartoftheweek.htm

-- - (x@xxx.cQm), May 03, 2000.


Prior chart of the week

http://www.bearmarketcentral.com/priorchart.htm

-- - (x@xxx.cQm), May 03, 2000.


Fleck on today's selloff:

Maybe some pages are missing. . . In any case, we had basically steady selling in the stock market until about 2 p.m., when the Fed's Beige Book was released. Well, lo and behold, the Fed has discovered that strong U.S. growth is intensifying wage pressure and "every regional Fed district reports widespread lack of workers." The Fed also says the "worker shortage is holding back overall economic growth." Lastly, they observed, "U.S. stock volatility hasn't affected the economy."

So when folks got a look at that, we had a pretty serious slide that took us to the lows with about half an hour to go. At that point, the Nasdaq 100 was down nearly 6 percent, the S&P was down about 3 percent, and you can extrapolate across the board for various other indices. At about that time, it kind of looked like the selling stopped and we had quite a jam job. The Nasdaq 100 futures, for instance, rallied something on the order of 150 points in about 15 minutes.

It looked to me like some of the big mutual funds stopped selling in the last half hour and decided to do a little buying to make the tape look better. It's an old trick from the 1920s called "buying 'em to sell 'em," and I'm sure certain that large institutions use that technique to get out of their stuff without making the tape look quite so ugly. It was the most blatant example we've seen of that in a while, if in fact that's what occurred...

I heard some financial commentor guesting on the radio make the comment, "We have nothing to fear but fear itself." The host said, "Yeah, and it wasn't long after FDR said that when the bombs started falling." They laughed...

-- DeeEmBee (macbeth1@pacbell.net), May 03, 2000.



Bingo!

Pace of Productivity Growth Slows

By Steven Vames (TheStreet.com/NYTimes.com Staff Reporter)

5/4/00 11:10 AM ET

U.S. workers continued to do more work in less time in the first quarter, pushing the government's measure of worker productivity higher. But the pace of productivity growth decelerated from the fourth quarter and it was accompanied with a rise in labor costs, factors that could heighten economists' fears that the current low level of unemployment might eventually become inflationary.

Nonfarm productivity increased 2.4% in the first quarter, the Labor Department reported Thursday, following fourth-quarter 1999's revised 6.9% pace. Unit labor costs rose 1.8% in the first quarter following a 2.9% decline in the fourth quarter. The rise in unit labor costs is the first increase since the second quarter of 1999.

The magnitude of the slowdown in productivity growth came as a surprise to many economists, who had been looking for productivity to rise 3.7%, according to Reuters...

Wonder how many of those economists read Jim Grant or Bill Fleckenstein. They might want to start doing so.

-- DeeEmBee (macbeth1@pacbell.net), May 04, 2000.


Fleck provides yet another valuable "freebie" in today's column: a cautionary item about "Buying the Dip" from a very experienced investor and money manager: D on't Be Fooled

Short excerpt:

To understand the recent plunge and to understand where the market is headed, you need to understand the dynamics that fuelled the historic rise. The bull market of the '80s was, for the most part, a catch-up phase to the 17-year-long bear market that preceded it. Asset prices and earnings power had increased during the great inflation of the '60s and '70s; falling inflation rates and falling interest rates helped to catalyze investment values. Again, for the most part, share prices rose in tandem with the proportional fall in interest rates. By the early '90s, stock prices had caught up to their intrinsic values.

The next phase, the speculative phase, was the product of two coincident factors: easy money, created by the Federal Reserve to bail out the S&Ls and the major banking institutions in the US, and the paternalistic handling -- on the part of the US Treasury and the IMF -- of the three or four major financial crises of the past five years. Investors were reassured that come what may, they will be bailed out. With increased moral hazard came an explosion of leverage and a speculative orgy. The rest is history.

What has changed? What no one had expected in the New Economy: Easy money has finally impacted inflation rates. For the past year, inflation has risen to an annualized rate of 3.7%. The rise in services and core components such as housing carries ominous implications: Inflation is becoming entrenched. The Federal Reserve (and other central banks, too) has effectively lost maneuvering room and may no longer be in a position to bail out failing institutions with the impunity of yesteryear...

This was written back on April 14. Here's what Dr. Greenspan said in his speech today to a banking conference at the Chicago Federal Reserve Bank:

[He] also cautioned market participants, and in particular private investors, not to rely on the Fed to bail them out in the event of a bank failure. 'There are many that hold the misperception that some American financial institutions are too big to fail,' he said. While the Fed and other supervisors would try to ensure an 'orderly liquidation' of a failed institutions, Greenspan warned that 'shareholders would not be protected, and I would envision appropriate discounts or 'haircuts' for other than federally-insured liabilities'...

Seems pretty clear to me. Anyone who now thinks that the Fed can or will save the markets from themselves (or will rescue bankers who've taken a few too many risks) is whistling past the graveyard.

-- DeeEmBee (macbeth1@pacbell.net), May 04, 2000.


Dee do you think it will become another S&L crisis?

I'm afraid it will be worse because these institutions are into soooo much more nowadays.

We will know in a year.

-- Swampthing (in@the.swamp), May 04, 2000.


Swampthing -

(BTW, one of my fave comix waaaaaay back when I was collecting. Still have #s 2-6 and 9-12)

The moral hazard which now exists has encouraged many institutions and entities to take on very serious risks with (as Dr. Greenspan points out) untested controls. When very successful risk managers like Robertson and Druckenmiller decide to fold their hands and get out of the game, that seems to me a sign that the markets have become unsafe and that we are about to experience a very significant disruption. When this speculative phase ends, stocks will seek more fundamentally-based valuation, and anyone who "bet the house" on a never-ending bull market will find themselves lacking four walls and a roof. That's how markets work and they take no prisoners.

-- DeeEmBee (macbeth1@pacbell.net), May 05, 2000.


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