Back to the Drawing Big Board - TheStreet

Editor's note: This column originally appeared April 16 on RealMoney.com. It reflects action in the stock market on Wednesday. To sign up for RealMoney, where you can read Bill Fleckenstein's commentary every day, please click here for a free trial.

There's a lot to talk about, and hopefully I'll do it all justice without making this column too long. Everyone knows that in the past couple of days, we've had a giant amount of earnings releases. Tuesday night, most of the news from tech was deemed to be good, with the parade led by

Microsoft

(MSFT) - Get Report

and

Intel

(INTC) - Get Report

.

The guidance was not as bad as I expected, but on the other hand, that does not mean the guidance is correct. We have seen many, many times where management has been optimistic, only to be proved wrong.

Nevertheless, as I was saying Monday, I have been fearful that we could witness a burst of gullibility as folks manifest a willingness to suspend belief. That, in fact, seemed to be occurring last night when, a couple hours after Microsoft and Intel reported, the Nasdaq 100 futures were going wild, up 2.5% at one point. The S&P futures were dragged along also, to the tune of about 1%.

Beating Up on Mom and Soda Pop: Preopening, the rally for the S&P and, by extension, the Dow, came unstuck when Coca-Cola (KO) - Get Report reported numbers that failed to pass the "good enough" test. Wednesday, Coke was punished for just under 10%, while it trades at just north of 20 times earnings, in a business in which competition has been manageable.

On the other hand, Intel, which operates in the fiercely competitive technology arena, and which trades at 35 times earnings, was up just shy of 5% for "beating" its 12-cent estimate. Another highflier that has rallied after reporting recently is

Juniper

(JNPR) - Get Report

, which trades for $10 and maybe will make 4 or 5 cents this year.

I could give lots of other examples, but I think what this points up is that our so-called market is about nothing more than speculation. Tech stocks command huge prices because they stoke folks' dreams of a return to the mania, or the invention of some new sexy product that will make them gobs of money. When you think of something as prosaic as Coke, it's kind of hard to let your imagination run wild.

From Sport Extreme to Selling Supreme

: So, I believe that the current rally will continue to be about speculation. This is not a new bull market. It's not grounded in values, it's not grounded in investment dollars. It's all about chasing motion and playing the game. In technology, many of the corporate stewards spent so long playing the game in the 1990s -- that being the game of managing their own stock prices -- they're incapable of giving it up. Though I have constructed the case for the possibility of a rally and still think one can continue, this kind of action is part and parcel of why I believe it's doomed to fail, and will create a spectacular selling opportunity somewhere further down the road.

Meanwhile, once again, the hate mailers have managed to cut the legs out from underneath their own rally, as last night I received a handful of hate mail. It seems that these losers can't let a rally get a decent head of steam before becoming obnoxious -- and I haven't even been bearish lately.

Plain-Vanilla Pariahs

: That preamble aside, back to the action, where the market opened Wednesday, in essence, on the highs (though those highs were well off Tuesday night's highs) and then basically sold off all morning. A couple hours into the day, the

Dow

was down 1% and the

Nasdaq

up 1%, which underscores the point I was just making about how speculation continues to hold sway. Consider, for example, that even with the Dow down 1% and the

S&P

down just shy of 1% in the early going, the SOX was still up 3%. Who wants those boring, heavy, mundane Dow and S&P stocks when they can have some real sizzle and imagination, to boot, over on the Nasdaq?

The early morning swoon basically continued all day, with the S&P and Dow in essence closing on the low tick, after having seen a rather dramatic swing from the highs to the lows. Though the Nasdaq and tech stocks in general finished near their lowest levels of the day, most closed nicely green. They gave ground only grudgingly, in an impressive display of speculation and bravado, as much of the rest of the tape was for sale all day today.

Bears Squire Bulls to Matzoh Ball:

It's also interesting to note that the volatility measures, which are at a low level by the standards of the last few years, barely budged Wednesday, even with the striking reversal in the Dow and the S&P. And, volume was higher on both the

New York Stock Exchange

and the Nasdaq, leaving folks to ascribe distribution to the Dow and the S&P, and just the opposite for the Nasdaq.

This also appears to be a continuation of the trend of "can't go up well and can't go down well." But instead of oozing, as we were shortly before the war began, now we're slowly creeping higher. Meanwhile, Wednesday we got a bevy of earnings reports once again. Thursday may be an unusually wild day, both in view of the Passover holiday and the start of the Easter weekend, and the fact that the option expiration comes a day early.

Away from stocks, the dollar, which one might have expected to get a better bounce than it has, was weaker once again Wednesday. Perhaps this indicates that the next leg down for the dollar will really be a fright. The precious metals were kind of quiet, with silver down 1% and gold up 80 cents. Fixed income was a nonevent.

The Prudence Payoff

: Turning to news away from the earnings front, there are a couple of items worth discussing. To fight its inflation concerns, Canada on Tuesday raised interest rates for the fifth time in the last 13 months. Canada's bubble was never as big as our bubble, so its bursting was not as bad as ours. Also, Canada has benefited from being more of a resource-based economy.

Obviously, the folks who run Canada's central bank never got as drunk as the members of the

FOMC

. That they are behaving like adults has not gone unnoticed in currency land, where the Canadian dollar has appreciated by more than 10% vs. the U.S. dollar. Those of you who own

Pan American Silver

(PAAS) - Get Report

(a company that I own and of which I am a director) get a direct benefit from this appreciation. So you've got that going for you, which is nice.

Appointment Oversight

: Shifting to the outrage department, I note that none other than New York Fed Governor William McDonough -- one of the big Fed heads who aided and abetted the mania, along with Easy Al and Dallas Fed Governor William McTeer -- has recently been named to the board of the NYSE and also has just been appointed as chairman of the Public Company Accounting Oversight Board (which means he now can't serve on the NYSE board). In addition to his role as Fed cheerleader during the bubble, McDonough threw in some more fuel by helping to champion the bailout of Long Term Capital Management. This resulted in untold losses for investors, who'd come to believe there was a "Fed put" that would protect them.

In any case, when it comes to looking out for shareholders' interests, McDonough is not exactly the kind of guy who practices what he preaches. For many of you who probably don't know, while serving as a director of the Bank for International Settlements, he was, to quote Jim Grant in the most recent issue of

Grant's Interest Rate Observer

, "complicit in a compulsory buyout of the bank's nonpublic shareholders. The BIS offered the stockholders a price equivalent to 53% of net asset value, take it or leave it; late last year, a Dutch tribunal ordered the bank to boost the price to the equivalent of 70% of NAV (the investors had sought 100%).

Two months before the ruling, McDonough warned an audience in Washington, D.C., against the kind of directors who, 'instead of functioning as watchdogs for shareholders ... may increasingly function as lapdogs for management.' There's trouble when the wrong dogs rise to high office."

So, we have yet another (now withdrawn) director-nominee of the NYSE, and head of the new accounting oversight board, who appears to say one thing and mean another. McDonough is the replacement for Sandy Weill, whose nomination was withdrawn because of the outrage of Eliot Spitzer, among others. On that note, Jim says, "All who prefer sin to sanctimony will regret the substitution. Weill, at least, has acknowledged his lapses and paid for (or, rather, seen to the paying of) a $400 million fine."

'We'll Get Back to You'

: The NYSE's difficulty in finding upstanding directors, and seeing that current ones remain above reproach, was a topic of mine in a

recent column when Sandy Weill bowed out due to his particular black cloud. That the disbanding of the search committee would be premature is seen in a

New York Times

story by Gretchen Morgenson on Wednesday titled "NASD Says Invemed Inflated Commissions on Trades."

Besides having a reputation as a real money maker, and serving as a director of the NYSE,

GE

and

Home Depot

, Kenneth G. Langone heads up the aforementioned securities firm, which has now come under the scrutiny of regulators for

potentially

failing to do the right thing by its institutional customers -- "potentially" being the operative word here, as Mr. Langone was rather vocal in defending his firm's practices.

However, the allegations are all the more disturbing, because, as Gretchen writes, "Mr. Langone is also a member of the exchange's corporate accountability and listing standards committee, which has instituted new rules aimed at restoring investor trust in the companies whose shares are traded on the Big Board." This is all part of the mosaic that I keep talking about. Here we are, three years after the mania, and not a whole hell of a lot has changed. Yet.

William Fleckenstein is the president of Fleckenstein Capital, which manages a hedge fund based in Seattle. Outside contributing columnists for TheStreet.com and RealMoney, including Mr. Fleckenstein, may, from time to time, write about securities in which they have a position. In such cases, appropriate disclosure is made. At time of publication, Fleckenstein Capital was long Pan American Silver, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy, sell or hold any security. The views and opinions expressed in Mr. Fleckenstein's columns are his own and not necessarily those of TheStreet.com. While Mr. Fleckenstein cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to

bfleckenstein@thestreet.com.