Excerpt from this week's Barron's. The writer is Alan Abelson who is a fairly objective guy. If Fleckenstein is accurate that dosen't bode well for anything that goes into a box.
One nifty measure of how spirited a rise tech stocks enjoyed P.I. (pre-Intel) is that the market value of Microsoft has swelled by $40 billion since the beginning of 1998 -- which is more than GDP will likely increase in the first quarter, assuming 3% growth. Put another way, Microsoft has added more in market cap in a bit over two months than the $7 trillion economy of the U.S. will add in the opening three months of the year.
That astounding calculation comes courtesy of Bill Fleckenstein, the bloody but unbowed proprietor of RTM Fund, a hedge fund that is mostly short tech stocks. Bill was the subject of a Kate Welling Q&A last fall and, a quick review reveals, was quite bearish on Intel, Dell, Compaq, et al., for pretty much all the right reasons. Bill, however, has been a prophet without profit, as big investors paid more heed to "themes" and "momentum" than to what's happening in the real world.
No masochist, Bill doesn't derive the slightest bit of pleasure from getting killed by the market. Yet he deserves a salute for resolutely proclaiming fact when all about him were doting on fantasy. Kate phoned him late last week to offer a pat on the back and, more to the point, ask what he thought now.
He's still bearish on most techs, unequivocally on stuff like Compaq, Gateway, Dell, Intel and other chip makers, although he's wary that the portfolio pack will decide that with the stocks down, it's time to buy without stopping to reflect, even for a moment, on why they're down.
He reiterates some of the points he made in the October interview. Among the more telling is this: PC market penetration is now 40%-45%; saturation will probably be reached when 90% of households own a computer (that's what constitutes saturation in TV sets). Selling prices six months ago averaged around $2,000; they're now at $1,200 and six months from now will have declined to $1,000. Okay?
Let's say market penetration in PCs reaches the 90% level nine months hence. With the average selling price half of what it was when penetration reached 45%, a reasonable inference is that unit growth will be accompanied by virtually no revenue growth. And -- to be generous -- zilch earnings growth.
What's true of computers is, as Intel's slump demonstrates, equally true of chip makers and, for that matter, everything else that goes into a PC.
Events are finally vindicating Bill's marketplace analysis. Who knows, in the fullness of time, maybe his shorts will be vindicated as well.
LJ Vocke |
