PaperChase:
Thanks for the link. Of course in Q3 and 4, some mysterious force will descend on our planet and all the problems will go away. (g)
I've actually taken a bit of a shot at the New York crowd for their incessant comments that the second half will witness a recovery in the tech sector. For many quarters, these jerks haven't come up with anything but pie-in-the-sky forecasts that have had to be rescinded and watered down as the numbers have come in. The trick, as we've all discussed many times in the past, is to lower the earnings estimates before the numbers are actually posted (like the night before in some cases), so that CNBC can crow that the company "beat the estimate". Then of course, its time to jack the second half estimate up into the stratosphere to keep the little lambs happy.
Personally, I think all this nonsense is about to become irrelevant as a broad range of world financial conditions accelerates to the negative. I've stayed primarily on the sidelines this spring, picking away only at the mortally wounded (MU, ZE, INTC), primarily in fear of the great Japanese savings exodus from their already teetering banks, and into our already insane stock markets. That has proven to be a prudent thing to have done. Now however, in spite of a continuance of those historic money flows, I think it's time to move more resources into this tulip situation as the deterioration is gathering impetus.
For this observer, the most important item is the steadily rising pressure on both the American dollar and American interest rates. No matter how I cut it, a fall in the dollar and a rise in interest rates appears inevitable. The Japanese central bank is selling its US treasuries at a frightening rate to try to hold the Yen up, and A.G. has no choice but to take this soggy mess back in via the printing of new greenbacks. This is inflation with a capital "I". The Japanese WILL raise their interest rates in the near term, (as they cannot abide this currency exodus), which will in turn, unleash a firestorm of bankruptcies on the Japanese banks. The selling of U.S. treasuries by Japan will continue to accelerate, hence more printing press greenbacks will further dilute the U.S. currency. Once the dreaded "D" word (default,.... as in all those Asian loans that will never be repaid) becomes more openly employed in our current lexicon, it won't be just the Japanese banks that fall into the abyss.
The Europeans are fed up with the U.S. treasury/greenback flood and will dump their "excess" U.S. dollar reserves, probably starting some time later in the year, if not sooner (they aren't blind to the Japanese unloading), as the Euro becomes a reality. They've tried to talk to Clinton/Rubin/ A.G. about this, but to no avail. If the Euro is backed by a bit of gold, (and it very likely will be), it will prove much more attractive than the dollar. U.S. dollar selling will further accelerate. The trade deficit, already insanely out of balance is heading for outer space. The next set of numbers will be truly mind numbing and will just add more pressure. Now I ask you, how does one encourage foreigners not to blow their U.S. dollars/treasuries back into the land of Goldilocks? Simple, ...you increase interest rates. This is an inevitability, although the excuse will be a bit different.
Interest rates up, even a bit will spell doom for this silly bubble. How long will it take for this pressure to rise enough to push rates up? Not very long. Most of the problems are now accelerating. Hard to believe the Fed didn't act on May 19, but probably impossible to sit on hands in July.
In the Tech sector, one has to be blind not see the inevitability of this continuing debacle. I've been detailing the descent in PC and semi sales growth for two years, and it too is now accelerating. The price wars ensure that few make real profits and most companies are running out of accounting tricks to employ. In simple terms, the over-supply is massive and the demand is falling. The tech sector, having been over-owned and over-loved will lead this market down.
The past earnings season was the worst I can remember, and virtually all companies have warned of further problems ahead. While it may sound like heresy, I expect bankruptcies to become common in the sector as there are no visible alternatives in sight. To anyone who thinks that the second half may evidence a recovery in the PC or semi sectors, I have a single question.......ON WHAT BASIS MIGHT IT RECOVER? To suggest that it can is pure drivel.
In passing, I think we should all send some very polite "thankyou" notes to all those nice tech analysts who have puffed this thing up by ignoring reality. My main worry now is that the market's fall might be sufficiently nasty that "defaults" are extended into the realm of winning short/put holders.
Best, Earlie
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