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Editor's note: This column, which reflects market activity from the day before, originally appeared July 16 on RealMoney.com. To sign up for RealMoney, where you can read Bill Fleckenstein's commentary every day, please click here for a free trial.

Last night's news was


(INTC) - Get Report

quarter (much more about that below),


(S) - Get Report

sale of its credit card business, and earnings disappointments from


( MOT),


( LU) and

ASML Holding

(ASML) - Get Report

. The overnight response was mass excitement on the back of Intel, with the futures initially almost 1% higher. That kind of wore off, perhaps due to the weakness in bonds in the wee hours. Interestingly enough, the dollar was quite strong, though by the time we got around to opening this morning, it reversed.

Bulls on Sabbatical: After opening on the highs of the day, the market basically headed straight down, such that within a couple hours, the indices were off about 1%. We spent the entire day flopping and chopping not too far from the lows, then surged once more late in the afternoon to set the prices you see in the box scores. The bifurcated action saw tech and housing stocks mixed, and most financials red. Other than that volume again came in higher, today was kind of a nonevent.

Away from stocks, I think the action previously described was kind of important. It's not impossible that yesterday was one final puke in the euro and the metals, and the low is now in. We will know soon enough. Turning to today's action, silver was flat and gold was up $1. The euro and the Canadian dollar were up about 0.5%. The yen, however, was weaker. Fixed income (30-year futures), after being all over the place, finally closed flat. These markets have all seen an enormous amount of motion and remain a bit unsettled, but if they all start behaving "in concert" over the next couple of days, we might be able to piece together what's really going on. Stay tuned.

On the Stock Docket . . .

: I thought I would now reprise where we are in the rally that's been going on since the spring, and talk a little bit specifically about Intel. Regular readers know that last January and February (see, for example,

my Feb. 12 column ), I felt fairly strongly that the path of least resistance for the market was up. In fact, I opined that we could have the best rally of the entire bear market. But I stated at the time that it would just be a "rally" (however powerful).

Since then, what's struck me profoundly is folks' conviction that the rally is de facto proof of the economy coming back. And, since the economy's coming back, they don't have to worry about the stock market. So, it's kind of a nice little loop they've stitched together. Amazingly, hardly anybody seems to recall that we went through this same process 15 months ago, in the first quarter of 2002. Then, despite our big rally on the back of better-looking data (embellished via hedonics and seasonal adjustments), everything fizzled, necessitating all the subsequent rate cuts, and of course throwing lots of people out of their jobs.

Now, with all that a distant memory (except on the part of the unemployed), folks are more convinced than ever that we're in a new bull market, and more than happy to cite various improvements they expect but which have yet to appear. Yes, companies are making their second-quarter numbers, but that was never really in doubt, as the bar had been set pretty low.

A Pox on Profitability

: Folks have this notion that the stock market is still about the game of beat the number, when that was a silly construct made up in the mania. By now, one would have expected them to understand that corporations need to make money in order to be viable investments. For the moment, however, that's not a major consideration, as it only interferes with the business at hand -- rabid speculation. Recently, a reader (thanks, Frank) emailed me some statistics from


that demonstrate this point rather well:

To put an exclamation point on just how great the speculative qualities of the current rally have been, Rhonda Brammer reports in this week's Barron's that companies in the Russell 2000 (one of the best performing indexes of the bear market rally) that have no earnings are up 39% in the second quarter. The Russell 2000 would have gained 12.9% instead of 17.9% for the quarter if the 'non-earners' would have been omitted from the statistics. Moreover, she notes, shares in the Russell selling under $5 soared 54.9% inthe April-to-June quarter, while shares selling at $20 or more gained 14.3%.

Taking Issue with Tech Equities

: In any case, my real complaint about the stock market does not concern the relief rally that's occurred, though I would have thought we'd need to see much stronger fundamentals to bring us this far. My complaint about the market is (a) the price, and (b) what people have handicapped to come true in the fabled second half and beyond. I think the third quarter and the fourth quarter are going to be serious problems, particularly in tech land.

As articulated previously, I have wanted to wait for a failing rally to get short, and that's pretty much what I have tried to do. I've taken a stab at a couple names, without any success, while waiting for the market to exhaust itself on the upside. I believe this process is pretty well under way now. If that is the case, at some point we'll get a nasty break that will linger for a little while, followed by a failing rally, then possibly we'll really know where we are. I think that folks will come to regard the stock market as an extremely dangerous place in the second half. I believe that before this year is out, as I have said repeatedly, things will change and the potential for a massive dislocation is very real.

Panning Al's Panacea

: A potential powerful catalyst to douse the speculative flames is Greenspan's loss of credibility -- a trend that gathered some steam the past two days in front of Congress. If the economy doesn't zoom soon, he will get a lot of scrutiny. That is bearish, because if he can't wave a magic wand to make trouble disappear, why pay 35 times earnings for the

S&P 500

? Al has a high hurdle set for himself (and no wiggle room), as Joanie observed today:

Right now he sees 3.75% to 4.75% H2 growth and the unemployment rate dropping to 5.5% by year-end. Three months ago, he was all about deflation. Four months ago, he couldn't get his arms around the economy sufficiently in order to categorize the 'bias.' Over two years ago, he spoke of a 'six-to-nine-month lag' for the positive impact of the early rate cuts to be felt. Three years ago, he denied the existence of the stock market bubble. Before that, he broke down and espoused the new productivity paradigm, dissing the 'irrational exuberance' he had made famous only three years before that. You wanna' keep goin' on this? Me neither. This guy is a loser. His only consistency is his signature panacea of papering over all problems by providing liquidity until the latest batch of excess triggers the next crisis." The era of postbubble denial is about to come to an end, in my opinion.

Intel Elation on Raised Expectation

: Turning now to Intel, despite my concerns about being short generically, my rationale for this short concerns the second half, not the second quarter. Last night, everyone got excited because Intel made the second-quarter numbers and didn't lower guidance for the third quarter. But what really fanned the flames was the fact that the company boosted its gross-margin guidance from roughly 51% to 54% (plus or minus a couple percentage points). So, 51% goes to 52%-56%.

Some of that was purely a line-item shift, i.e., employee costs coming out of costs of goods sold and into R&D, and a slight reduction in depreciation. I think that the expectations folks have drawn on the back of this will not come to pass. Further, it seems to me that what the company just delivered was more than fully built into the stock, considering all the dead fish piling on in anticipation of the second-quarter results (about which they were correct).

In the meantime, Intel faces a number of other headwinds. PC demand appears to be slowing down, according to data from market-tracking service NPD Intellect. Certainly, Intel's business plan of always selling high-end processors is totally flawed, given that people can get what they want for $500 to $1,000.


is going to make Intel's life difficult in flash. Also, I don't believe the Centrino will do all that spectacularly. Yes, maybe folks already in the market for a notebook will look for this, but it won't suddenly make folks unhappy with what they've got. And anybody's who's dying to get Centrino-like features can always buy a Wi-Fi card for not much money.

The Case for Intel Agita

: Furthermore, and perhaps most important, I anticipate good things from

Advanced Micro Devices'

(AMD) - Get Report

Athlon XP part, which is slated to roll out in the third quarter (don't laugh). It will underscore not just the aforementioned problems but also Intel's less-than-brilliant design capabilities, and cause serious pricing (margin) pressure. Its Itanium product is more like a Titanic product. If Intel can't make its money at the high end, and it can get scooped by AMD on design (remember that AMD's 64-bit part is backward-compatible), I think this spells very serious problems for the company.

Not only do I think Intel will miss the numbers implied by the gross-margin guidance, I believe it will do materially worse. (But even if the company were to magically make the 90 cents or so the bulls expect, it's still more expensive than


(MSFT) - Get Report

. If you must own a PC supplier, why not go with the monopoly?) That's my prediction for the third and fourth quarters, which is why I have mostly been buying October paper. In any case, for right or for wrong, that's my take on the market in general and Intel in particular, and those are my tactics.

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 short Intel, long Intel puts, 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