As the metals bounce, what is cheaper, gold or silver?
By Bill Fleckenstein President Of Fleckenstein Capital
October 18 (King World News) – Overnight stock and bond markets were both higher, and our stock market joined the party, with the indices gaining about 0.75% through midday, though the Nasdaq did even better due to a perceived win at beat-the-number by Netflix and anticipation over Intel tonight. So once again good news is believed to be applicable to everyone while bad news is ignored…
By that I’m referring to the fact that the absolutely rotten quarter IBM produced had no real negative legs, although in this case all that really demonstrates is that the parts of the tech business that IBM serves are pretty lukewarm at best, with IBM merely the most prominent example. Specifically, Big Blue managed to produce its 18th quarter in a row of declining revenues after having spent $5.5 billion on acquisitions in the first nine months of the year. The company was initially deemed successful at beat-the-number, but that was only because it collapsed its tax rate once again and booked an enormous increase in its intellectual property “contra” expense.
If that thought makes your head hurt try the search, as I have explained it in the past, but basically IBM uses that line item as a cookie jar when it sells off assets to lower their expenses. The reason I bring it up is because the amount they took this quarter was more than the first nine months of last year combined.
Just About Got It Pegged
The fact that those two levers were pushed as hard as they were leads me to believe that IBM may be running out of runway on its game playing, especially given how tepid world economic growth is. Thus, while IBM is an interesting storyline because of its largest shareholder, Warren Buffet, the amount of financial engineering means it ultimately doesn’t provide too much information into too many companies and I only bring it up because it was so ugly. (For the record, I was short it, but I covered in the early going today.)
Turning back to the action, in the afternoon the market tried to push higher, but couldn’t and closed the session just below the midday levels. Away from stocks, green paper was flattish, fixed income was slightly higher, oil added 1%, and the metals were higher, as silver gained 1% to gold’s 0.5%.