re: Big Bath:
I think you may be right. I'd say they have a lot of cleaning up to do, from the years of Creative Accounting. It is certainly a pattern for companies to try and get all the bad news out in one big bad report (and hope investors ignore it as a "one-time event"). Unfortunately, companies don't seem to be able to avoid wishful thinking, so, another pattern is for "one-time events" to get repeated. So, I think the odds are, one bad report gets followed by at least one more.
If Cisco is really not going to be buying any more companies, using CSCO (the stock) to pay for acquisitions, then it is a lot less important to try and keep the stock up. And I don't think they need to worry about employees leaving if their employee options are underwater (where are they going to go to?). So, it may be that the company is going to "take the long view" and not worry about what happens to the stock price, at least for the remainder of 2001.
We've already taken out my guess about the 2001 bottom. I think the best thing to do now, is just let the market tell us. Look at the WCOM chart:
siliconinvestor.com
When the CSCO chart looks like that, then, and only then, will it be safe to take a long-term position. That is, the stock needs to stop going down, go into a horizontal range, stop the pattern of lower lows and lower highs, and stay flat for several months. Not days, not weeks, but months. Until then, only shorts and very-short-term traders will make money in CSCO.
I don't think we need to worry about a quick 1987 or 1998-style rebound. The first rebound off the bottom will be all given back, and maybe the second and third, as well. I also don't think we need to worry about a 1929. Rather, I think we're looking at something between a 1990 and a 1973. Consumers are going to look at their stock portfolios, and (with a 1-3 year lag) realize they need to spend less and save more. Housing prices will come down, and people are going to realise it isn't a good idea to take out a home equity loan to pay for that vacation to Bali. Stocks and housing is where Americans have their wealth. We are just at the beginning of the decline in consumer spending. The hope for a 2H01 recovery is going to evaporate. A lot of stocks are still (still!) held up by that hope. Semi-equips in particular.
Eventually, I'll be buying a lot of out-of-the-money longest-term CSCO calls. But not yet. For now, I am firmly on the sidelines. |
