An interesting article from "Bill the Bear" Fleckenstein. I know he's been a "sky is falling" advocate for a looong time.....but he may have it right now?
siliconinvestor.com
In the news, Ed Hyman of the ISI Group pointed out that when the price of oil broke in 1980, the rig count broke one year later. And when the Nikkei broke in 1990, Japan's economy started to break a year later. He's pointing out that since the Nasdaq stock bubble broke a year ago, this is about the time we should start to see some technology company weakness. When one looks at it in the context of bubbles breaking, the absurdity of the notion of this getting better by the second half becomes very clear.
While I'm on this subject, I'd like to make another point about where the problems will occur. If you envision a pyramid turned upside down, the apex where all the problems are going to funnel through in technology are the semiconductors, because those parts go into all the products that aren't being sold. The only ones in worse shape are the semiconductor equipment companies. Think of them as capital goods suppliers to a very cyclical industry in massive overcapacity, and you can see why it's crazy to bet on those jockeys with these valuations.
Turn the lights down low. . . One of the reasons that I've harped on all the shenanigans going on in corporate America, where they focus on the stock price instead of the business, is because by doing that a lot of businesses have been hurt to the point of ruin. There is no better example than Lucent (LU), which is potentially headed to death's door because of trying to move heaven and earth to make the number. All the vendor financing that went on, and not just at Lucent, where companies that couldn't afford it were sold equipment on credit so that "expected" sales growth and earnings growth would be there, is now starting to blow up in everybody's face.
The amount of hanky-panky that has gone on in this cycle dwarfs any other cycle probably by a factor of 10. The fallout from this will be very grave. Companies that took on debt in addition to balance sheet voodoo are going to be the most vulnerable. It was particularly remarkable to see IBM, for instance, only down $1.50 today. If anyone thinks that company is going to get through this unscathed they're crazy. IBM is in the same business as the companies that are getting hurt right now, it has no protection from a price war and its balance sheet is a disaster waiting to happen.
Perhaps over the three-day weekend folks should take a step back and think about what's gone on and the potential for problems. I think we can be certain that the bad news will continue to escalate and it seems as though folks are not prepared for it yet are determined to bet against it. One of these days all hell's going to break loose and you're not going to get a chance to sell them at anything remotely resembling today's levels.
Top or bottom? Take your pick. . . I'd like to make a comment about trying to pick bottoms and tops. Trying to pick the bottom is like trying to pick the top. By definition, it's an extremely low-probability event because it can occur only once. That's why I think it's particularly crazy to state, with any degree of certainty, that the bottom has been reached. When we were chronicling the craziness of the last couple of years, from time to time we tried to describe what a top might look like just so we would be prepared if we ever saw events surrounding that top.
We chronicled a number of blowouts and reversals that didn't turn out to be the top, but at the time I tried to be careful to point out that by definition it was a low-probability event and staking money on guessing that was foolhardy. I would remind the bulls of the same thing -- it's worthwhile knowing what a bottom looks like, but it's not very likely it's going to be identified on the day it occurs, and it's even less likely that it's going to occur so recently after the peak of such a very large mania. |
