Hi Brian, I have a favor to ask of you. Since this is a very quiet thread, would you mind emailing the the webmaster/webmistress to request a name change for the thread? I think it would be enlightening and instructive to monitor all analysts calls regarding the semiconductor sector. If we broaden the scope of the thread in this manner, we could liven up the thread and provide a documented track record of past calls. This might tell us which analysts are accurate in their calls and which ones stink. This is only a suggestion and as the originator of the thread, the call is up to you. I think it would be fun and we'll learn which analysts know their stuff. For instance, Mr. Fleckenstein thinks the upturn in semiconductors is a complete crock. It would be nice to compare his predictions to what actually happens. Do you like this idea?
Anyway, here is what Fleck thinks about semiconductors. I think he will be proven very wrong.
stocksite.com
December 4, 1998
Market Rap with Bill Fleckenstein
Insanity speaks as market rises again
Rate cut boosts Europe... Asia was quiet last night for the most part and Europe was
modestly higher this morning following yesterday's rate cut. The news department is
where I want to focus.
JNJ announces layoffs... Last night Johnson & Johnson (JNJ) announced that it would
be laying off 4 percent of its global work force. Now JNJ is an extraordinarily
well-managed company. This is not an indication of it trying to get lean and mean, this is
an indication of weak economic conditions. It is just a continuing pattern of what we can
expect to see as America begins to feel the economic weakness.
Intel news ignites explosion... While the market was not very strong overnight, we
opened with an absolute explosion to the upside. The S&Ps were up 2 percent in the
first five minutes and the Sox was up another 4 percent in the first 10 minutes. It turns
out that there was a Dow Jones story that Intel (INTC) sees the fourth quarter up 8 to
10 percent over the third quarter. This was the same news that Intel gave us a couple of
months back, but it appears that market participants just interpreted this as another
pre-announcement. This led to the huge explosion, as Intel was up over $5 immediately,
taking the rest of tech with it.
DRAM prices moving south... In any case, as another indicator of weakness, DRAM
prices broke yesterday. Micron (MU) has been out telling people that it is completely
booked up for the month of December, yet my sources tell me that isn't true. We will
have to wait and see. According to my sources, the DRAM market is seeing lots of
parts and we should see a big price break shortly. The big PC inventory build is largely
behind us (and there is no real sign that boxes are moving very well either), and there is
massive excess capacity. I think there has been a lot more speculation activity than usual
in the actual parts themselves. What should happen next, given the excess supply, is that
prices should break violently.
Indescribable insanity... In terms of today's market action, the insanity has spoken and it
doesn't want to stop. Today was another indescribable day amongst many indescribable
days we have had during the last two weeks. The fact that the news from Intel was
nothing new didn't stop the stock from closing up $7. The semiconductor index was up
about 4 percent. The bank stock index also went berserk, up about 3 percent. The
Internet stocks also came to life.
It is staggering to see these kinds of moves in these securities given the problems that
exist, which are not theories but facts. For the banking system, Brazil is another
problem; for the economy, layoffs are a problem; for corporate America, earnings are a
problem. Yet we continue to see the very businesses that are most in jeopardy by what
is going on in the world - and have the most ridiculous valuations to begin with - being
bid up over and over and over again.
I have no clue when this insanity will end. All I know is that is going to end in the biggest
debacle since the 1930s, that much is guaranteed. There is no way that this can end any
other way than in total destruction.
Inside Intel... Speaking of Intel, it is a company with an over $200-billion market cap,
which has about $25 billion in revenues, and is about to report its sixth straight quarter
of lower year-over-year profits. Two years ago it controlled almost 100 percent of the
PC market, and now it finds itself with less than a 35-percent market share of the fastest
growing sub-$1,000 area.
The world has figured out that it doesn't need more megahertz, it needs bandwidth, for
which Intel is very poorly positioned. Yet it has the highest valuation in its history. All
because it is producing enough parts to help the PC companies take market share from
each other, thereby massively overbuilding relative to what the market needs. Intel, in
my opinion, has been very promotional in its attempt to drive its stock price up so it can
use wampum to make a big acquisition in the networking arena. This is just an educated
guess on my part, but if it happens you will know why the company has behaved as it
has.
PC industry trouble-bound... It is 100 percent knowable, right here and now, that there
is going to be a debacle in the PC industry in the next 90 days. We are building 20-30
percent more PCs than the market is going to consume over the holiday season. That is
substantiated by what the PC retailers and value-added resellers are indicating. The
facts all are out there and you don't even have to look that hard. But the drunken
speculation has reached such a crescendo that even facts that are right in front of
people's faces are totally ignored. They continue to buy pieces of paper just because
they act well.
Today's nonsense was a fitting finale to one of the most absurd weeks that I have seen
in my 20 years in the business.
As I see it
It is interesting to see what the Chinese are trying to do on the back of economic
weakness in their country. They are setting up cartels in different industries and banning
price reductions to stop prices from coming down. Essentially, they are trying to outlaw
the lower price impact of over-capacity in autos, steel, sugar, tractors, cashmere, glass
and ostriches, among others (this story was in the Wall Street Journal yesterday). These
are just more symptom of the excess capacity that we have been discussing.
Along those same lines there are some very interesting thoughts in George Soros' new
book, which I just received a copy of. I am going to finish reading it this weekend, and
on Monday I will share some excerpts that I find most illuminating. I was quite surprised
to see him say a number of things that I believe. If you didn't know that I had written my
speech before his book came out, you would think I stole some of his ideas. Stay tuned.
In an amusing piece of news, yesterday Ticketmaster Online (TCMS) came public
under the ticker symbol TCMS. Well, there was another company that used to trade
under the same symbol, Temco Services Industries, that now trades under (TCMO). In
any event, in a case of mistaken identity, traders took the price of Temco from $28 up
to $65 and then closed down $3 on the day. But the point is real when I say that no
research is being done. People don't even know the stocks that they are buying or their
symbols.
One final piece of news: It turns out that in recent days Saudi Arabia has had to turn to
its neighbor, the United Arab Emirates, to borrow money. Just goes to show you how
tough life is in the oil patch these days. All of these things - the weakness in copper, oil
and other commodities, and the layoffs - all point to one thing: We are headed for a very
ugly recession that is due to over-capacity and excess speculation in the world. Easy
money created the problem; it won't cure the problem, and that is the difference
between the bulls and the bears. |
