Interesting comments re INTC and AMD from Bill Fleckenstein! Scroll down to paragraph with darkened lettering.
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The Birds, the Bees, the Barren PCs
By Bill Fleckenstein
Special to TheStreet.com
05/23/2002 06:12 PM EDT
Pedicure for SOX-Less Feet: Overnight, the markets were kind of quiet, and this morning, our futures were under a little pressure in the countdown to the durable-goods number. But they rocketed higher, setting off a giant party, when orders (ex-transportation) showed a 2.9% increase, vs. expectations of 1%, and the prior estimate was revised from minus one-tenth to up eight-tenths.
They tried to continue that momentum at the open and were promptly smashed. Then another rally was attempted, which didn't really stick. What lingered an hour into the day was widespread pain throughout tech land, with the Nasdaq down 1%, led by the SOX. That said, the S&P and the Dow were trying to hang in there, led by the bank stock index. So, in the early going today, the casino instruction manual read: "Sell tech and buy finance."
Strawberry Gold Fields Forever: For the first half of the day, it looked like the bottom might drop out again, and of course, the strength of the precious metals somewhat corroborated that view. But lo and behold, with a couple of hours to go, a real jam fest began. The S&P was able to spring forth about 1.5% in that time frame, the Nasdaq 100 was able to turn around to the tune of just under 4%, and the Nasdaq Composite rallied better than 3%. It's interesting to note that though the SOX came back from about a 3.5% beating, to close just fractionally down, it was obviously left in the dust. You can check the box scores for the closing prices, but it is worth noting that the indices all closed on their highs, with the Dow the laggard on the day.
The leaders today were the housing stocks (which were pretty consistently firm) and the banks and brokers. The biotech stocks were on a huge rip, with that index up over 7%. I think the catalyst may have been Biogen's (BGEN:Nasdaq - news - commentary - research - analysis) announcement that it had received approval for one of its drugs. After being halted early in the day, it never did reopen.
Interest-Bearing Crosscurrents: In any case, today finished as it began, which was basically a revulsion of tech, but its innards were not so symmetrical. For example, Micron (MU:NYSE - news - commentary - research - analysis) was up 3%, but the SOX was down. The VIX was down almost 4%, but yet gold was up 1.5% and silver was up 2%. Those things usually don't happen. I'm not sure what it all means, but all in all, today was one of the more interesting days that we've seen, from a crosscurrent standpoint.
Gold Rush to Judgment: Away from stocks, there was a good deal of motion. The yen saw its second day of intervention, with the dollar up just modestly, considering the degree of finagling. The euro also was slightly weaker, as was fixed income. The metals saw a good deal of motion. Initially, they were pretty weak, as silver was down 2% and gold was down about 0.75%. Then, they turned around and screamed higher, as previously noted. Gold stocks, too, saw a good deal of motion, which is not surprising, given the enormous run they've had. Just to repeat my thoughts from yesterday, people should be very careful establishing new positions right now.
Maestro Micron Semi-Conducts Fiddle Section: In the position-dismantling department, today's weakness in the SOX (before the late-day rally) was largely led by the semiconductor-equipment stocks, although some of the more expensive chip stocks were weaker, too. Stunningly, the canary in the coalmine, Micron, was the macho leader, staying green all day and closing up 3%, even though last night DRAMs were down once again, $0.15, now to around $1.85. This is almost to the lows seen a couple months back, before the morons in the dead-fish community started chirping about shortages, while Hynix, Micron, et. al., fiddled the DRAM market.
Now Playing on the Inventory Channel: 'The Unexpurgated Unclogging': One of the reasons why this escapade was so spectacularly unsuccessful is that the PC business (as almost anyone who's awake knows) is now saturated, and there's no sign of a pickup in IT spending. As long as we're in PC land, let's tarry a moment here, shall we, to talk about some other problems. Anyone for massive inventory clogging the channel? That's the view as previously reported by Hewlett (HPQ:NYSE - news - commentary - research - analysis), and also by Tech Data (TECD:Nasdaq - news - commentary - research - analysis) yesterday. Yet even as the PC train wreck continues, many of the stocks associated with it proceed to trade at preposterous prices.
Not Beautiful When Vulnerable: Not to point fingers, but I shall. Let's start with Dell (DELL:Nasdaq - news - commentary - research - analysis), which trades at 40 times earnings, when it's been making the same amount of money, plus or minus, for the last few years. While the company has been spectacular at managing its business, i.e., squeezing vendors, it hasn't been very good at buying back its own stock. A close examination of the balance sheet will show that Dell is in the process of wiping out all the retained earnings by its writing of puts. In any case, I don't see why anyone in, or a supplier to, the PC business ought to trade much above 15 times earnings. So, to me, Dell is very vulnerable.
Intel Buried by Hammer & Sickle Earnings: But, of course, the most vulnerable is Intel (INTC:Nasdaq - news - commentary - research - analysis), with its $200 billion market cap, eight times sales valuation, and multiple of 40 or 50 times hoped-for earnings. Intel is, in my opinion, headed for a world of hurt. And if the saturation problems and the stuffed-channel problems weren't enough, Advanced Micro Devices' (AMD:NYSE - news - commentary - research - analysis) hammer product is, in my opinion, going to hammer Intel. It's a better processor, and AMD will be able to deliver. What lies ahead is a serious amount of bloodletting in the price war that will occur sometime in late Q3 or Q4. I firmly believe that Intel's days of domination are numbered. I know this sounds like heresy to most people, but change always sounds like heresy.
IBM Slathers Topical Ointment on Wounded PCs: Six, eight or nine months ago, a lot of people thought it was crazy to expect the kind of problems that we talked about at IBM (IBM:NYSE - news - commentary - research - analysis). And while on that subject, I believe the problems for IBM are nowhere near solved. I think the estimates are too high, and from what we've been seeing from the software vendors, I can't imagine how business is anything but horrible at IBM, as well. I think anything to do with PCs or IT spending continues to be very dangerous, while a lot of people are obviously huddled up there because the valuations are so preposterous. Of course, chip stocks in general tend to be expensive, as are equipment stocks, but those are topics for another day. |
