Interesting point that Michael Cahill has about many of the telco bonds trading at too big a discount, this means
that capital will continue to be scarce for some of the telco's and so Capex, could even head down some more
from here. susan byrne, the very bright manager from Westwood Mngt in Dallas was the co-host on squawk box
this week and she had multiyear charts showing technology capex spending as a % of GDP and it is still
very high historically, and this implies it contracts further over the next year or two.
She also had a chart ( I think these were 15 year charts) showing energy Capital expenditure as a % of GDP
and it was still below average, at the bottom of the long term ranges.
Cahill figures BRCM, PMCS and JNPR could still be vulnerable to patches of weakness if this reduced
revenue growth story plays out.
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Listening to the Telco Bears
By James J. Cramer
5/10/01 1:50 PM ET
Telco bears of the world, you deserve to be heard! And I went to hear you, yesterday, at the same conference that Bill Miller spoke at, for Tomorrow's Children.
Your number was represented by Michael Cahill, a brainy young guy who is shorting telecom tech, specifically Juniper (JNPR:Nasdaq - news - boards), Broadcom (BRCM:Nasdaq - news - boards) and PMC-Sierra (PMCS:Nasdaq - news - boards).
He's keying off this group for one main reason. As a high-yield bond expert, Cahill has tracked how the bonds of the buyers of these goods, the telcos, are trading. Right now he says a massive number of these bonds are trading at levels that indicate there are many more defaults coming. Given that, he doesn't believe that capital expenditures, which he thinks will fall 17% this year, are going to rise in 2002. (Most think that they will.) In fact, he thinks that 2002 will be far worse than 2001. Given that view, he wonders how these three stocks, which are trading at 10 times next year's estimated revenues, can possibly make the estimates.
His speech, eerily reminiscent of what Ravi Suria used to talk about publicly when he was with Lehman Brothers, would mean that this most recent bounce in telecom equipment stocks would be a great shorting opportunity.
Why listen to Cahill about these stocks? How about because Cahill was up 61% net of all fees last year for his fund (which began in April) and before that he was at the highly respected (and deservedly so) Kingdon Capital?
Am I shorting these? Heck, man, I can't short anything. But I sure am not long them either. |
