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Editor's Note: This piece originally appeared April 7 on RealMoney. To sign up for RealMoney, where you can read Bill Fleckenstein's commentary every day, please click here for a free trial.

Overnight, an epic rally was inspired by good news on the war front, and it was not lost on our markets, which opened to gains of better than 2% for the


, 3% for the


, and almost 4% for the Nasdaq 100. The market tried to go higher in the first half hour or so but could not make it stick, and began to leak. That still left us up substantially in the early going, to the tune of 2% and 3% for the S&P and Nasdaq, respectively.

Of Faith and Forensics:

Now that we have had the war rally, or some portion of the war rally, the important thing will be to determine where it will end. I continue to believe we'll find clues in how individual stocks react to good and bad news. That's why it makes sense to focus a little more than usual on the market action, at least in the short term. For example, last Friday after the close,

Siebel Systems


sneaked in a preannouncement, but that stock was up better than 5% in the early going, before ending the day up 3%.

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, last week's canary in the coal mine, continued its upward surge.

So for the moment, stocks are still showing a decent ability to shrug off bad news. As earnings season continues to unfold, we'll get many more opportunities to see how news is digested, and that should be a critical determinant of where we are in the topping-out process. Is it possible that this rally can last for six weeks? Sure, that could happen if folks make up all kinds of stories about a tax cut emanating from the oil market and the government, from peace in the Middle East, from a second-half story, etc. I have no idea yet of the extent to which people will believe those arguments and how long the rally can last. But I anticipate a tremendous amount of arm-waving to justify a new bull market.

Sharks Get Hives from Scales of Justice:

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Turning to some potentially legitimate good news, in the early going today, the Supreme Court struck down a $145 million award for damages against State Farm Mutual Automobile Insurance. This is only the second time ever that the court has overturned a jury award as unconstitutionally excessive. Not being a lawyer, I have no idea whether the State Farm ruling could be the start of a trend. But I do know that routine damage awards have become insane and totally out of control. Any version of tort reform aimed at capping them would be unequivocally bullish for America, in my opinion, though reform in and of itself would not justify stock prices at current levels today.

In any case, to return to the launch pad of overvaluation, the morning milieu was one of near-euphoria, however brief it might have been. After the early morning highs, the market set back, went sideways for the middle part of the day and then basically slid throughout the afternoon to close on the low tick,


eradicating the day's gains for almost all the indices. In terms of "inside the market" action, I didn't really see anything to point out, other than that the SOX was the strongest index (I'm not sure how significant this is) and that the Dow Transportation Index was up almost 2%.

Fermented Fervor:

From a sentiment standpoint, today was a bit of a toss-up, though I kind of think the advantage would have to go to the bears. We had a decent jump up in volume today, but even though the indices finished green, the fact that they came off so hard is potentially a negative development. However, I have seen situations where something like this has occurred, only to be followed up in the next couple of days with a rally. It's way too soon to say the rally is over, but given the massively explosive start we began with, I would have expected a little more out of today.

Away from stocks, as one might imagine, there was a good deal of motion as well. Fixed income was under pressure, with the 30-year futures contract down half a buck, while the dollar was up, especially vs. the euro. Gold closed down $3.80, after having been down about $6, but silver was up fractionally. Lately, silver has been acting much better than gold. In the last few days, I bought some silver futures, as I think silver has a chance to lead the precious metals on the upside.

Paper Trail, to No Avail:

Now, I'd like to discuss a subject that prompts many reader emails, and that is market manipulation, otherwise known as the "plunge protection team." Lots of people think that market manipulation goes on, and that the President's Working Group on Financial Markets is involved every time the market mysteriously rises. I have a view on the subject, but the time to articulate it here in the Rap just never seemed right until today. That view is closely encapsulated by John Mauldin in a piece titled "The Plunge Protection Team," which I read over the weekend on Obviously, if this is taking place, there certainly must be some trades that would produce a paper trail. I especially like the fact that he was willing to put his money where his mouth is, as you'll see below:

"You could not keep something of this size secret. Period. The orders would have to be entered somewhere. The theory is that Goldman Sachs or Citibank (or pick a firm) is part of this conspiracy. That means that multiple traders and officers would have to be in the know. You cannot mask trades of that size because it would essentially be the largest hedge fund in the world. Someone would spill the beans. Can you imagine the signing bonus from a book publisher if you could prove the existence of the PPT? I hereby offer a $100,000 advance against 50% of the royalties to anyone who can 'show me the trades.' Give me names and dates. I will write the book, and we both become famous."

He continues: "Further, can you imagine what political hay the opposition political party would make of the proven existence of a PPT? Do you think that the Dems wouldn't love to embarrass Bush with 'proof' of his manipulation of the market? Can you imagine Newt Gingrich or Tom DeLay (Republicans) not beating up Clinton and Robert Rubin for crimes against the market and for losing billions of dollars of taxpayer money? If the President's Working Group was really the PPT, do you think every former


and CFTC Commissioner (and there are maybe a dozen) would all keep silent after they are out? Do you think their wives (or husbands) would not tell all in a divorce hearing? Do you really think that Harvey Pitt would have allowed George W. to fire him if he could blow the whistle?"

No Smoking (Gun) Section:

Of course, this is not proof positive that manipulation does not occur in the form of some nefarious government agency. However, I think his points are the key stumbling block to the arguments of those who believe that manipulation does exist. In the 15 years since its inception, one would think that if the President's Working Group on Financial Markets were engaged in plunge protection, somebody would know about it.

William Fleckenstein is the president of Fleckenstein Capital, which manages a hedge fund based in Seattle. Outside contributing columnists for 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 had no positions in stocks mentioned, 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 While Mr. Fleckenstein cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to