re: I don't know why people are surprised to see semi equipment stocks go up on news that the bottom is in
I'm hearing a lot of "expert" opinion that the bottom is in. There is an excellent article in today's WSJ, about the use of second derivatives, in current attempts to time the bottom. Basically, a lot of people are saying, "things are bad now, and are still getting worse, but it's getting worse at a slower rate than before, so.........the bottom is in, and the stocks are going to take off any minute now."
My response is: "That's one scenario, and the most optimistic of a number of equally likely scenarios". Basically, calling the bottom now assumes a sharp V-shaped recovery. That worked in 1998, and it worked in 1996. Will it work in 2001? In those two previous downturns, once bookings for semiequip stopped going down, they abruptly started going up, and spent almost no time at the bottom. OK, so today we have now reached the abyss of bookings, we are in the area of trough bookings in 1998 and 1996. Capacity purchases are nil. So this has to be the bottom, right?
Here's my prediction: bookings have now about hit bottom. They will not go down much further. But, they also aren't going up. They will stay at about today's levels, through year-end 2001. Usually, I am a Believer (notice the Capital B) in the repetition of previous LT patterns. But not now. Now, I expect a U-shaped bottom in bookings, an extended period (lasting at least into 2002), where we see only tech purchases, and we see month after month of zero capacity purchases.
Why do I expect this new and different pattern? Because this downturn is different than in 1998 and 1996. In fact, I'm not sure this downturn can be compared to any previous downturn, even going back to 1985. The basic reason why it's different (and worse) now, is that the whole industrialized world is on the brink of recession. So, this downturn is not just about overcapacity and stuffed channels. And it isn't just about E. Asia, or any other single region. It's about a decline in demand for chips, a decline that won't end when inventories get cleared, a decline in demand from heavily leveraged companies and consumers from Berlin to LA to Tokyo, and all parts in between. That situation did not exist in 1998, or 1996, or 1990, or 1985.
I'm listening to those "experts", and I'm hearing them call the bottom, and upgrade the semis and semiequips. Oddly, though, I also hear them push out, yet again, the date when they expect end-demand to recover. 6 months ago, the consensus was a recovery in fundamentals by 3Q01. 1 month ago, the consensus was recovery by 4Q01 or 1Q02. Now, I'm hearing a lot of those "experts", (the same ones saying the bottom is in), say that demand really isn't going to recover before 2H02. That's a full year away. If expected recovery in end-demand for chips is now 12 months away, that should be a reason to sell the semiequips. Instead, we are having a rally.
So, I think we are seeing the 4th time in this bear market, where the SOX makes a 50% rally off a low (680 will be a 50% move off 453; we're almost there). And, I expect this one to be given back, all of it, just like the first 3 were. |
