With continued uncertainty in global markets, David Stockman weighed in on the coming global collapse and one short seller warned, “I have no idea how long they can keep pretending.”
By Bill Fleckenstein President Of Fleckenstein Capital
July 19 (King World News) – Overnight equity markets were slightly lower, with bonds markets slightly higher in uneventful trading. As for our equity market, Netflix provided some fireworks, as it lost badly at the game of beat-the-number and the stock price was hammered for 14%. IBM, however, managed to win at Wall Street’s favorite game by making enough acquisitions to make the estimates. For those keeping score at home, revenues were down about 3%, making this the seventeenth quarter in a row for that feat. Debt now stands at $42 billion and book value is minus $27…
Continue reading the Bill Fleckenstein piece below…
A Thumb On the Scales
The balance sheet is as it is because IBM continually makes acquisitions and writes off costs to help play the game of beat-the-number. And of course it has the slush fund of contra expenses, which allows them to pay taxes to have the cookie jar to help beat estimates. It is one of the most obvious cases of financial engineering one could imagine, but most folks are happy to look the other way because Warren Buffett owns so much of it and thinks so highly of it. Only time will tell if the bulls or bears are right, but for today its results were deemed to be successful.
As far as the market at large, it was slightly lower through midday, and then just drifted sideways until I had to leave, with an hour to go. Away from stocks, green paper was stronger pretty much across the board, oil was a nonevent, fixed income was higher, and the metals were mixed, with silver losing 0.5% and gold fractionally higher.
There isn’t much more to say about the equity market. I really don’t see what’s going to drive the market higher, but it does seem to be impervious to bad news for the time being. Nonetheless, folks expecting a rampage to the upside are liable to be disappointed.
Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.
Question: WSJ Tuesday Headline “Fed Officials Gain Confidence They Can Raise Rates This Year”…and the beat goes on…
Answer from Fleck: “…until they change their mind again. They are so clueless.”
Question: This is David Stockman’s description of the bond bubble end game:
“But this monumental deformation is so recent that there is very little negative coupon debt that has yet been issued in the marketplace. Subzero land is overwhelmingly a phenomena of the one-the-run market, meaning $13 trillion of bonds are trading at significant premiums to par—-and, in some Japanese and German issues, massively so. In short, the global bond market has become a giant volcano of uncollectible capital gains. For example, long-term bunds issued four years ago are now trading at 200% of par. Yet even if the financial system of the world somehow survives the current mayhem, the German government will never pay back more than 100 cents on the dollar. Can you say multi-trillion dollar bond implosion? Better try. Its eventual arrival is an absolute certainty.”
Sound right to you? Thanks.
Answer from Fleck: “200% of par sounds like a stretch, but most of it seems reasonable.”
How Long Can They Keep Pretending?
Question: Bill: I sense the world is descending into chaos, but the market is still partying like it’s 1999…could it be that the collapse and possible crash may be even worse than you have anticipated? For how much longer can the bulls pretend everything is ok?
Answer from Fleck: “Yes, it likely will be. But I have no idea how long they can keep pretending.”
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