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January 22, 1998
Market Rap with Bill Fleckenstein
Stupid is as stupid does
I continue to see wild men pounding the table for stocks
like Micron (MU). It defies explanation. Wednesday it was First Boston,
and Thursday it was Paine Webber. It amazes me that some Wall Street
analysts make millions of dollars to be stupid.
As I see it...
I'd like to reiterate a point I've made several times: Stocks and
currencies can come down a heck of a lot faster than they go up -
especially if the reasons behind the initial rise were unfounded. For
instance, if the investing worked not because of fundamentals but just
because everyone was doing it.
This is similar to what has been going on in Indonesia. From a
macro-economic standpoint, lots of things were wrong. Now we're seeing
just how bad things got. To put the situation into perspective, the
collapse of the rupiah has wiped out 10 years of wealth in six months.
Thursday's collapse in Schlumberger shows that when things get hit, they
can get smashed. The same thing will happen to a lot more big-name
equities before this is over.
I've talked a lot about technology because, in my opinion, that is where
the biggest gap exists between reality and make-believe. People still
want to believe technology will provide great returns going forward.
Folks, it's going to be a train wreck. These businesses are the most
sensitive of all to economic slowdowns. Now, the wild card here is what
will happen to the president. If there's big trouble, it makes it much
tougher to orchestrate all the bailouts currently in place. It
complicates the issue of extricating the money-center banks as well, so
we could start to see pressure in those areas. The Mexican peso was
under a lot of pressure Thursday. I think all these problems are
complicated further when we have a president who may be in a lot of hot
water. If, God forbid, something should go wrong in Iraq about now,
there's no telling what could happen.
I do want to warn people that things are very questionable right now.
When a situation comes unglued, it can happen all at once. And it won't
matter if you felt like a genius because your strategy made money in the
last two or three years. You'll lose money, too, when we go back to a
world where one-plus-one equals two, instead of any number we want.
The rising shares of Micron technology is another classic example of
irrationality. Some analysts are trying to tell us that the price of
DRAMS will increase because of all the problems in Asia. I'm sorry to
inform you that is not the case. Even if we don't build any new fabs for
the next two years, DRAM prices will not rise - we have that much
over-capacity right now. Yet the stock is at $30, and - who knows -
maybe it will go to $35. I guarantee it will be cut in half within the
next year, and possibly break into the single digits. This is the most
obvious illustration of stupidity I can think of. Until Friday, that's
the Rap! |
