02/19/99:"Market Monitor"-Bill Fleckenstein Of Fleckenstein Capital
SUSIE GHARIB: Our market monitor guest this evening says that stock prices
are detached from reality. And so he's bearish on the market. William
Fleckenstein is president of Fleckenstein Capital. It's based in Seattle and
specializes in short-selling stocks. Nice to have you back here again.
BILL FLECKENSTEIN, PRESIDENT, FLECKENSTEIN CAPITAL: Nice to be here
again.
GHARIB: So what do you mean by that, stocks detached from reality?
FLECKENSTEIN: Well, I'll give you an example. PC stocks are quite popular. The
prices of PC stocks and things associated with them have been bid up
dramatically as though we're about to have a new PC boom when in fact in 1999,
when you combine unit sales with selling prices, the sales were flat. Every major
PC vendor reported revenues that were disappointing. It's a combination of Y2K
corporate purchases being done and the collapsing price of the home computer.
GHARIB: How does all of this fit into your bearish scenario?
FLECKENSTEIN: Well, I think that things that I might want to be short or
investors might want to be careful of are companies like Compaq and
Hewlett-Packard (HWP) and Dell and Gateway (GTW) and IBM and they all have
revenues that were light.
GHARIB: But these are stocks Bill, that investors consider bullet proof. Sure
they're down now, but they always bounce back.
FLECKENSTEIN: Well, that's what people think, that's correct. But I think if you
examine the fundamentals, I'm not talking about just looking at the chart. I'm
talking about looking at the fundamentals. You can see that there are real
problems. I mean there's a survey done and only 15 percent of corporate
purchasers still expect to make purchases after June 30 so there's a dramatic
corporate slowdown coming in PCs and a profitability squeeze because they can't
make as much money below $1,000.
GHARIB: All right. So that's how you feel about the PC in terms of technology.
What are there outside of the PC makers, what other technology stocks are on
your short list?
FLECKENSTEIN: I think that PCs really drives technology harder which is what
I'm talking about. And I think that if there's going to be a problem in the PC area
which I think is a virtual certainty, companies like Intel are vulnerable. Memory
companies like Micron (MU) are vulnerable. The chip equipment companies which
have had sensational moves as investors have believed that a new cycle is under
way, are going to be vulnerable because it's really not a new cycle. It was a
seasonal pickup from last spring's problems and there's a big likelihood that this
huge group of companies that have all moved together as Intel's results got better,
they can all unwind in the near future.
GHARIB: I know your firm has basically a strategy of short selling. Is there any
stock that you go long on?
FLECKENSTEIN: I'm long one stock and I have to admit I'm a director of the
company and I own the stock so I know I'm the stocks were biased. But Warren
Buffett is bullish on silver and so am I. And he stated that basically the supply
and demand is rather an elastic. Investors want to buy his stocks but they tend to
laugh at this commodity purchase and Pan American Silver is soon to be the third
largest silver producer in the world.
GHARIB: Really. What does the stock trade at?
FLECKENSTEIN: It's about $5.5. It trades on NASDAQ. It's a $170 million market
cap, terrific management. It's one of the very few pure investments in silver.
GHARIB: What I want to ask you is that you've been bearish for a couple of years
now.
FLECKENSTEIN: Right.
GHARIB: And if investors followed your advice, especially in 1998, they would
have missed out.
FLECKENSTEIN: Correct.
GHARIB: All of the major indexes were up double digits. What do you say to
that?
FLECKENSTEIN: Well, first of all, there's a difference between not making money
and not losing it, and while the market is going up, not making money seems like
losing it. But I was bearish in Tokyo a couple years before that market ended
when the Nikkei was 28000. It went to 38000 but I think the people that got out of
Tokyo by listening to me which was nobody, are probably glad they did. And I bet
the Japanese would rather have not had that bubble in the late '80's so they didn't
have to go through what they are going through in the '90's.
GHARIB: Let me ask you this. You always tell me it's no fun being a bear.
FLECKENSTEIN: It's not.
GHARIB: What would turn you bullish?
FLECKENSTEIN: Well, lower prices would help dramatically.
GHARIB: What do you mean by lower prices?
FLECKENSTEIN: Well, I think the averages, depending on where interest rates
are going to go and how the economy does, I think I'd like to see them down 30,
40 percent. I know that sounds like an impossibility and it's a function of interest
rates in the economy but I think there's far, far, far too much risk in these prices
to feel comfortable being a bull.
GHARIB: OK. We'll see what happens. Thank you so much for coming by and
talking to us. It's been our pleasure. And we've been talking with Bill Fleckenstein
of Fleckenstein Capital, our market monitor guest this evening.
Nightly Business Report transcripts are available on-line post-broadcast. The program is transcribed
by FDCH. Updates may be posted at a later date. The views of our guests and commentators are
their own and do not necessarily represent the views of Community Television Foundation of South
Florida, Inc. Nightly Business Report, or WPBT. Information presented on Nightly Business Report is
not and should not be considered as investment advice. (c)1999 Community Television Foundation
of South Florida, Inc.
nightlybusiness.org |
