>>John I don't believe we will see 20 to 40 %, but if that happens
I'll load up with more INTC, at those price levels. Do you ever try writing LEAPS
Felix <<
All I'm saying is to have the cash to do that....and still load up on some more if it's a 50% decline....that would make you big money in the long run...
BTY Fleckenstein was in good form today...here's his post..
"September 7, 1999
Market Rap with Bill Fleckenstein
Nothing much happened over this weekend. CBS and Viacom decided they wanted to merge, but I don't think that's a particular shock to anyone.
Bonds weak, dollar solid... As we came in this morning, commodities had pretty good bids to them and consequently bonds were weak all day. They ultimately closed down about 3/4 of a point, giving back about half of Friday's gains. The dollar was fairly firm. We had ECB Governor Welteke on the tape saying the euro was priced about right, and that put a little bit of a floor under the dollar.
Sox and boxes soar... Of course, we were off the races in the early going in tech land. The S&P was a bit soggy initially, but techs were where it was at once again. The Sox and box makers were ripping to the upside, and basically it was just another day in the mania.
Banks hit, Internets firm... The bank stocks were paying attention to the bonds, and they were whacked for about 3 percent. Internet stocks were generally firm with some down, some up.
In the complete disconnect department... We continue to see Best Buy and Circuit City get hammered, and they've been hit pretty hard the last group of days. Likewise, Tech Data and Ingram Micro are also getting pounded. The latter two companies represent $50 billion worth of PC sales and associated products, so it's a pretty good look at the health of the PC market. Obviously, the electronic retailers don't just distribute PCs, but it's interesting to see that group of stocks getting hammered while at the same time some of the other stocks go up on fluff.
For example, Gateway was up over $3 today because the company's going to split its stock tomorrow. It's even more insane to note that IBM was pretty quiet this morning until it announced its intention to borrow $10 billion. That news made the stock catapult about 3 bucks.
So Gateway is being bought because it's going to split and IBM is up because it's going to borrow $10 billion more and presumably buy back stock. And the companies that represent a decent barometer on the state of the business, at least the computer business - Tech Data and Ingram Micro - get smashed.
To put IBM's borrowing in perspective, it's got about $30 billion in debt outstanding right now against about $20 billion in equity. So $10 billion for IBM is a big number. It's not big relative to the market cap of the company, at $250 billion plus or minus, but it's a big number relative to its balance sheet. That is a great example of the disconnect that goes on on Wall Street every single day.
Revisiting those employment numbers... I had a couple of interesting emails awaiting me this morning, and I want to share them with you. My friend Jerry Stanewick offered his take on the Friday employment numbers, and it is as follows:
"I happened to be having my breakfast on Friday when CNBC announced the unemployment data for the month of August. I tried real hard not to laugh when the data appeared. The numbers looked so contrived I could just hear the conversation between Treasury Secretary Summers and the head of the Labor Department.
Summers: Well, what do the numbers look like?
Labor: They look pretty strong across the board Mr. Summers. Wages are way up, the number of new jobs is over 300,000, and the rate fell to 4.2 percent.
Summers: Are you sure?
Labor: Yes sir, we are quite sure.
Summers: Have you seen the stock market for the last four days? The bond market is a basket case. Your President is counting on you to be a team player here, Madam Secretary. Do you know what those numbers will do the markets, and the nation?
Labor: What are you saying, Mr. Summers?
Summers: We need a friendly number. We can't see a 300-point fall in the market. Is there anyway you can do some of that seasonal stuff to make things look a little softer?
Labor: What do you mean by softer?
Summers: I think 120,000 new jobs and a small rise in hourly pay would do the thing.
Labor: You want us to lie to the American people?
Summers: Of course.
The data Friday was a joke. The rally in stocks and bonds was a bigger joke because it was built on air and a previous four days of people shorting.
I am back and I still see no sign there is any change in the liquidity void this market has been in for the year. It is not going to change as long as people keep blindly buying stocks and our dollar trades lower."
CPI reality check... Another friend of mine, who wishes to remain nameless, also thought that Friday's numbers were fairly contrived and decided to dive into the CPI data. Titling his short message "Torture the data until it finally confesses," what he found was pretty interesting:
"After Friday's employment data, which showed declines in manufacturing, retail and construction that just don't jibe with reality, I did a little reality check with some of the CPI data. This is what I found:
1) The housing component of CPI for the nation is running at around 2.2 percent y-o-y rate, which does sound a little low given all the noise about real estate booming across the country.
2) To test this, I checked the housing component of CPI for just the New York, New Jersey and Connecticut area. I was astonished. The housing component of CPI in the New York area is running at 2.04 percent, July '98-July '99, LOWER THAN THE NATIONAL AVERAGE! In fact, from January 1995 to July 1999, New York housing costs have risen at a lower rate than the national average! This just doesn't ring true. Does it?"
As long as we're talking about fiddled CPI statistics, Freddie Mac came out today and said that its home price index was up 5.5 percent in Q2, not exactly jibing with what the BLS had to say. And while we're on that particular subject, the BLS has been telling us that annual inflation has averaged barely 2 1/2 percent since 1990. However, median home prices have soared 45.1 percent over that period, which works out to be about 4.4 percent annually.
Therefore, if the BLS hadn't removed the actual housing prices from the CPI in 1983 and replaced it with a hypothetical rental equivalent, then the official inflation rate would be running at least 1 percent higher. I'm indebted to Jim Stack for that piece of trivia. It's a concrete example of how these government statistics are really pretty meaningless.
Recommended reading.... Regular readers know that in the past I've talked about what an absolutely spectacular technology analyst Fred Hickey is. He publishes the High Tech Strategist, and his most recent piece is probably one of the most important he has ever written. For those of you who don't know, Fred has been very right in anticipating problems in chip land and PC land for the last five years.
He was one of the first people to mention that there was way too much building going on in anticipation of Windows 95 back in 1995. He was also aware of the channel stuffing in late 1996 and 1997 and '98. He has been very accurate in terms of where problems might be in technology and just as importantly, where they might not be.
In Fred's most recent article, he makes an extraordinarily compelling case that the combination of our usual second-half PC build, along with Y2K fears (causing double ordering in chip land), have created the illusion of a PC and chip boom. Fred states that the business market for PCs is about to go stone cold as the preparations for Y2K are quickly coming to an end. The result will be major indigestion in tech land as overbuilding collides with the dramatic drop in sales.
I think it's the best piece he's ever penned in terms of anticipating a dramatic inflection point when everyone else is looking the other way. I believe that the case he makes is dead right and, if true, will have enormous implications. I've prevailed upon Fred to allow the Rap to publish his most recent piece in its entirety. It is available on the following page.
I think Rap readers should read this, and I also recommend that you subscribe to Fred's publication. In addition, everyone should take action about what he says, depending on how strongly you believe it and how it fits in with your portfolio. Forewarned is forearmed
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