Semiconductor Industry Association mans psychic colder-than-a-witch's-chip line.
The Market Rap
William A. Fleckenstein
06:15 PM 11|08|2001
In the wee hours, the markets were a snooze until the ECB and BOE both cut interest rates by 50 basis points. That started a little party in the overnight futures market and put Europe solidly on its way to 2% to 3% gains for the day. Our market had a rather firm opening, turned around a little bit, and then exploded higher, such that after the first couple of hours, the Nasdaq Composite was up 2.5%, the S&P was up about 2%, and the Dow was up about 1.5%. I would expect none of you regulars to fall off your seats to learn that in the early-morning melee, the leader was the mighty, mighty Sox, up a quick 5%. Less endowed with upside potential, the bank stock index got into the act for a 2% gain.
Graphic Testimony As for the fireworks in the Sox stocks, one of the proximate causes was the Semiconductor Industry Association's rosy forecast into the next few years, and how that set various dead fish to waxing about the good news. But I don't think that these projections for rapid growth are worth a damn. For those of you with access to a hard copy of today's New York Times, look at the chart in the story "Trade Group Predicts Turnaround in Chips Sales Next Year." (This is a classic case of a picture being worth a thousand words, so you need not read even one of them.) Anybody with an eighth-grade education ought to be able to figure out what's going on here. Note that in anticipation of Windows 95, chips sales hit approximately $150 billion in 1995. We basically did not take that number out until 1999, when we were busy speculating and building Internet companies, and getting ready for the year 2000. This year, for instance, semiconductor sales will be less than they were in 1995. Of course, the forecast is for another hockey stick higher, which I don't expect to materialize.
The Quirk That Sank A Thousand Chips With the exception of 1999, which saw rampant speculation on the back of Y2K, semiconductor sales went nowhere during the last five years of the 1990s economic boom. It's interesting to note that from the fall of 1998 through the Sox's peak in the year 2000, the index ran from about 200 to 1200 on the back of this one good year. It was the movement in the Sox that has formed everyone's opinion about how wonderful these companies are, and about how they are supposedly early-cycle performers and all the other nonsense that passes for knowledge on Wall Street. That appears to be why these stocks can sell for such astronomical price-to-sales and price-to-earnings ratios and everyone still loves them. People should cut this chart out, tape it to their quote machines, and eyeball it good and hard when they feel the urge to buy semiconductor stocks. That doesn't mean that traders out there can't trade them from time to time, but anybody who wants to hold these stocks longer than a couple of hours is just asking for trouble.
One Or Two Lumps Of 'Zutz' In Your Morning Melee? The early-morning melee that I just described was the high for the day. Afterward, there were a few hours of flopping and chopping, with the market basically appearing to be kind of quiet. Then, with about two hours to go, the market started to fall apart and the tone felt a little different. From there we slid to the lows of the day, until about 13 minutes to go, when there was a straight-up move of about eight points in the S&P, about three quarters of a percent, as the market got a little "zutz," (to use Richard Russell's expression for late-day tape muscling). Volume was bigger than yesterday on what turned out to be a down day if one looks at the Nasdaq, and was barely a positive day if one looks at the S&P or the Dow.
Zutz-Less Sox So, whether this will get graded as a bullish day or a bearish day depends on the person doing the commentating. To me, it was bearish in that we had been up aggressively and then flipped over. (Nothing personal, Sox.) There has been a tremendous amount of short covering, and we have been into the "endgame" of this little buying panic. I would expect to start to see lower prices, which of course does not mean that there can't be another rally back up to these levels into next week. But once we get a little past next week, we will find ourselves into the bad-news season again, in which bad news may start to matter.
Canary In The Qual Mine That said, Qualcomm, our new litmus test, was up a dollar, so that thesis doesn't really hold water yet. But the way the Sox flipped over today may indicate that the fever has broken. Enough shorts have covered and enough longs have piled in that now the boat is lopsided to the bull's side, and stocks may start to go down more easily.
Easy Wim Away from stocks, the metals and fixed income were getting whacked. The "z-euro" couldn't get any respect, so it was under pressure as well. Apparently, nothing can undo Wim Duisenberg's prior credibility lapses. When the ECB doesn't cut rates, the euro goes down. When the ECB does cut rates, it still goes down.
Rust-Belt Bubble In the live-letter department, my thoughts on the California housing market prompted some worthwhile comments from a reader who lives smack-dab in the middle of the country. He was kind enough to mention that California's GNP would rank 4th in the world and not 5th, as I said yesterday. Anyway, I thought his observation about the situation in Ohio, Indiana, and Illinois was worth passing along: "I would like to point out that the world's fourth-largest economy -- the combined states of Ohio, Indiana, and Illinois, which are slightly less in total square miles and population than California but slightly larger than California in GNP -- is also becoming unglued. I know because I live right in the center of it. I haven't seen this area in such stress at the grass roots small-business level in 20 years. Some business people I know are experiencing their first really tough times in their company's existence."
Grief Multiplying XPonentially I now turn to the section of my e-mail that is reserved for horror stories about Windows-XP. Actually, this next one will be the last that I share, unless something really extraordinary happens, because I think people get the point. I am not a fan of XP for a whole group of reasons, such as those encountered by this Rap reader: "I was seduced by all the freebies into buying Windows XP and installing it on my computer -- big mistake. It warned me there were some compatibility issues and recommended picking up a new modem driver before I installed it. It also said that if there were problems, I could un-install XP and get my old set-up back. It wasn't quite that simple. The new modem driver didn't work, so I un-installed XP. Now Windows 98 is all screwed up. I re-installed 98 from the recovery disk, and it's still screwed up. I tried calling MS tech support. It takes 10 minutes to get to a non-technical support specialist and then another hour to get a technical support specialist, all on a toll call. I have been able to get on line, and there's one interesting thing -- half my IE bookmarks are gone, but I picked up two new ones, both to MSN."
Senator, Would You Care To Comment? Finally, I recently received a rather stunning e-mail on the subject of how Ollie North viewed Osama bin Laden 15 years or so ago: "At a UNC lecture the other day, they played a video of Oliver North during the Iran-Contra deals during the Reagan administration. There was Ollie in front of God and country getting the third degree, grilled by some senator who asked him, 'Did you not recently spend close to $60,000 for a home security system?' Oliver replied, 'Yes I did, sir.' The senator continued, trying to get a laugh out of the audience: 'Isn't this just a little excessive?' 'No, sir,' continued Oliver. 'No? And why not?' 'Because the life of my family and I were threatened.' 'Threatened? By whom?' 'By a terrorist, sir.' 'Terrorist? What terrorist could possibly scare you that much?' 'His name is Osama bin Laden.' At this point, the senator tried to repeat the name, but couldn't pronounce it. A couple of people laughed at the attempt. Then the senator continued: 'Why are you so afraid of this man?' 'Because, sir, he is the most evil person alive that I know of.' 'And what do you recommend we do about him?' 'If it were me, I would recommend an assassin team be formed to eliminate him and his men from the face of the earth.' The senator disagreed with this approach, and that was all they showed of the clip. Fifteen years ago, the government was aware of bin Laden and his potential threat to the security of the world." |
