Editor's note: This column, which reflects market activity from the day before, originally appeared May 12 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.
The markets snoozed last night, but in currency land, the dollar was rapidly sinking. The likely culprit was commentary yesterday by our secretary of the confetti department, John Snow, about how a lower dollar helped exports. He tried to reverse field later on, but the markets appear to have concluded it's now our policy to let the dollar slide, and that's just what it did. At one point in overnight trading, the dollar was down over 1% against the euro, but it then gathered a little strength as the casino opened for business, perhaps buoyed by stocks, which exploded out of the blocks.
Drool Pours Over the Counter: In the first couple hours, the Dow and S&P were up about 0.5%, and the Nasdaq was up almost 1%, with housing and tech leading the charge. The market ground higher all day long, without really backing off, closing in essence on the high tick. By day's end, the strength in housing stocks was pretty stupendous, as most of them were up 5%, plus or minus.
Biotech also got into the act. Tech was firm, but not really a standout today, with the mighty, mighty SOX up only 2%. I saw no overwhelming theme, other than folks chasing moving targets. Volume was considerably chunkier over the counter than it was on the New York Stock Exchange, as mania-like speculation drives folks to lust after lots of single-digit-type stocks.
Away from stocks, by the end of the day, the euro closed up roughly 0.5%. Fixed income was fractionally firmer. The metals were also slightly higher, with gold up 1% and silver up 2%.
: Turning to the commentary section of the Rap, I'd like to answer a thoughtful question emailed to me by a reader. But first, an announcement. I have recently started a Web site, mostly to answer emails. Often, I receive multiple queries about a subject that has obviously been on the minds of lots of folks. Providing the answer in a public format seems to make sense, not only for the sake of efficiency but also for education, since many readers might benefit from hearing my response to a thoughtful, complex question. Anyway, just go to
www.fleckensteincapital.com and click on "Ask Fleck," or continue to send me email as you have in the past (though the former would be my strong preference). Right now, the site is pretty rudimentary, though down the road, we'll probably add some features. In any case, folks can bookmark it and go there to check questions and answers.
Back to today's question, the reader writes: "A number of times now, you've stated your opinions that future problems await us on any number of issues (currencies, housing, inflation, stocks, etc.), but remarked that regarding the timing, you had 'no idea.' How do you run money if you have no idea of timing? Are most of your investments based on a five-year horizon, when the problems are sure to manifest? I don't know anything about running a hedge fund, but I thought it all had to do with timing and flexibility."
Winding the Cognizance Clock
: First of all, timing is the hardest part of the investment process. Trying to deduce what might happen, or what makes good sense from an investment standpoint is tricky, to begin with. But trying to determine the timing of it is far trickier, still, though lots of people naively believe they can. It's very difficult to get the timing right. Often, what I am trying to do in this column is to put ideas on people's radar screens, so that at some point, when it seems as if all the necessary ingredients have coalesced, we may see a catalyst to suggest that the timing
be at hand. This method may or may not be helpful, but that's how I try to operate.
I discuss details in the market action and away-from-stocks sections of the Rap, in order to raise awareness of issues that may be useful for future reference, and to look for clues along the way. That way, when the moment to take action does appear to arrive, and I discuss this in my column, it won't be coming completely out of the blue. For instance, I have talked about Japan off and on for three years, and still haven't done anything about that market. Likewise, I discussed the euro for the longest time because I was looking for clues as to when it might turn. (For two years, on the way down, when the euro was sinking regularly and the authorities from the European Central Bank didn't seem to care, I euphemistically called it the "zeuro.") Then, when I finally pulled the trigger on buying euros in the mid-$0.80s, the logic had already been established.
: As another example, last Friday I mentioned that it might be worthwhile to pay attention to SARS, not because I think any of us in America is in
danger of contracting the disease but because it seems as though the markets have now decided it's a nonevent. If the markets see it this way, then they have priced in a nonevent, and therefore, if anything other than a nonevent happens to occur, it could be a problem. But the fact is, SARS continues to be a problem in Asia, and it will be a problem for many companies that do a good deal of their business in Asia. That was the view from
executive vice president, Derek Williams, who said of SARS over the weekend, "This is going to have an effect all across the world, no doubt."
In any case, I am attempting try to describe developments that I think may matter, while I wait until it looks like they are actually
to matter, before acting. However, that is purely subjective, and guesswork on my part. I could be right, I could be wrong. When trends take root in the marketplace, they often run longer and carry further than one would think possible. Look at how crazy stocks got in the mania, and how long that trend persisted.
Striking Out on a Limb
: As for the question of my time horizon, when speaking of the long side, I believe that two to three years is rational. You can probably have a pretty decent opinion of what two or three years out may look like. But to think you know what five or 10 years out may look like strikes me as the height of folly. On the short side, though, which is how my fund is structured, I believe that a much more tactical approach is required. I am often not short, because of where we are in the quarter, because of what's going on from a macro perspective, or for a whole variety of reasons.
During the last couple of years, in fact, I have probably spent more time
being short than I have spent being short. The level of denial has persisted for so long that when there are no catalysts to cause people to re-evaluate a position and sell, they go right back to what they were doing in the mania, which is to buy.
: To sum up, I often state that I don't know the timing, because I don't. But that doesn't mean I am not trying to determine if the "time" to act is now. Generally, once I decide to do something, I make that clear in my column. But my main purpose in writing this column is to offer up food for thought, and not to make pronouncements on the timing of events that are unknowable. I hope that clears up questions on this subject. Meanwhile, I encourage readers to email their questions to my Web site. I will post them publicly, and everyone can go to school on their and everyone else's questions.
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 had no position in sotcks 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 TheStreet.com. While Mr. Fleckenstein cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to