re: AMAT, being early on the technology food chain, should respond EARLY in any recovery, which we all know.
I'm not sure I know that.
The current decline is different than the 1996 and 1998 declines. Today, we are facing the possibility (probability?) of a global recession (N. America, Japan, and Europe, all at the same time). In the previous two cycle troughs, demand remained robust, in most of the rich world, through the downturns. So, once the overcapacity and stuffed channels got resolved, we got a rebound, and the downturn was a sharp V-shape.
This time, it's different. This time, semis are not going to start increasing capex, until they see demand for chips recovering. Will Intel spend 7.5B on capex in 2002, if demand doesn't recover? I doubt it. I don't expect semiequip bookings to go much lower than they are now. And, once the market decides we've seen the bottom in bookings, there may be an impressive rally in the stocks, on the expectation that immediately after the bottom, bookings will rapidly increase. However, there is a real possibility that bookings stay at that low level, through 2001, and well into 2002. If (big if) that happens, then the stocks will go on to new lows. OTOH, if consumer spending holds up, we get that V-bottom, and I miss out entirely on the coming upcycle in semiequips.
Fed cuts have their maximum effect on the economy 18 months out. Everyone uses the "6 month lagtime" figure, but that's when rate changes begin (just begin) to have an effect. So, assuming the mid-point of this rate-lowering period was in about April 2001, that means the maximum effect of the 2001 cuts won't be felt till October 2002. And, right now, what we are (still) feeling is the effect of the rate increases in 2000.
And, just as the Fed overreacted in 2000 (raising rates too much), there is a real danger that they are currently overreacting in the other direction (lowering too much). If inflation gets over 4%, the Fed will be raising rates in 2002, and I'll be exiting most of my long positions in stocks, until after the recession. |
