I am 81% stock, 19% cash in my brokerage accounts.
I think we are in a new bull market which started after the bottom caused by 9/11. I have thought so since November, 2001.
We have been testing my hypothesis by testing the 9/11 low. Last Wednesday and Monday and Tuesday were very strong and seem to be setting up a successful test. AMAT and BTB are strong positive signs for both the economy and the new bull market. The AMAT price is double the 9/11 low! Today, it is less overvalued than at any time since early in the bubble, but it needs to rest and let the economy and the rest of the market play catch up. This need to rest, is also true of many of my favorite SOXX stocks, KLAC, NVLS, XLNX, and MXIM. ALTR and LLTC are behind the other 5.
I think is is reasonable to expect a trading range until the 4th quarter. The bull hypothesis will be met by last Tuesday's low holding and and slow growth in revenues and earnings should keep most companies below the recovery from 9/11 highs. By the 4th quarter, I expect that fears of a double dip will give way to the beginnings of visibility for the next real technology lead economic expansion. I readily admit that Q4 may be too early. The bubble hangover continually lasts longer than predictions. In any case, technology business will be stronger in Q4, but possibly only modestly so.
For a while, I have said that this is a very difficult environment for equity investing. Ken Fisher's declaration that this may or may not be the end of the bear offers further confirmation.
We have not discussed the inventory draw down situation. Let us suppose that the consumption of a company's product is currently growing at 5% annually. Also let us assume that 50% of the company's customers are drawing down inventory. If all inventory is drawn down to zero at the same time, the company will have a one time revenue jump of 100% followed by 5% annual growth. This example illustrates that many technology companies will have a revenue growth spurt where the % growth rate will exceed the growth rate of end user consumption. The rate will eventually settle back to the end user consumption rate. Almost all technology companies have had inventory problems and many have probably entered the revenue jump phase. We should take care against the inclination to use the "jump" rate as a long term growth rate and we should not be spooked when rates return to sustainable end user consumption rates. |
