Kerry:
Your comment about not being comfortable with the market right now rings true at this end. I have stayed primarily on the sidelines during the last few weeks in the belief that the market would force feed itself a year-end rally whether it deserved one or not, and that essentially has occurred. This rally does not appear to have much conviction at this point, but I'll still wait a bit. Have commenced a bit of nibbling at the ones I just can't resist or the ones that I expect to deliver Q4 earnings duds.....like GTW, CSCO, and INTC, as examples.
An interesting phenomenon appears to be taking place with respect to memory chips and the market's perspective on same. Over the last few years, memory chips have become very mundane commodity items. Unfortunately many market participants still see these devices as "exotic", and thus hold on to the belief that pricing may well revisit the heights attained years ago. This is essentially impossible in the absence of acts of war that destroy much of the world's current massive supply capacity. Commodity pricing moves towards cost of production, and cost of production has fallen dramatically thanks to technical innovation and competitive pricing pressures. Even if PC sales growth were not falling off the graph, even if each PC sold maintained former memory requirement growth (NOT!), even if inventories were not massive, etc., the likelihood of significant memory price expansion is remote. Once a manufactured item achieves commodity status, pricing is never the same again.
This is one of the many reasons why I love MU as a short. The market is finally beginning to recognize that memory chips have been "commoditized" and this recognition will inevitably squeeze MU's multiples. Agreed that it will be volatile, but with its stock price in total denial of current problems and with memory demand going nowhere, there is absolutely no fundamental support for the current lofty valuation. As nifty a piece of downside market insurance as one could hope for.
One more point......try to find any fundamental arguments (that make any sense) which would support or suggest a rise in MU's price. Aside from "the short position is big" (which is an exaggeration), they are difficult to uncover.
Shorting is never comfortable, hence it is best to pick on the wounded or walking dead.
Best, Earlie |
