I meant I'm a SOMTAMATB.
AMAT is overvalued, at these prices, at this point in the cycle (both cycles, the general economic one, and the semi cycle).
I don't think anyone is a longterm AMAT bear. I'm not sure what such a creature would look like, or how he could justify his existence.
When anyone calls themselves an "AMAT Bear", the preface "Short Or Medium Term" is assumed. From now on, I'll use the acronym SOMTAMATB (for greater clarity and precision) to identify my stance. As I learned in medical school, The Truly Wise can reduce all concepts to an acronym.
The way the semis, and even more the semi-equips, are ignoring macro events, is very odd. Yes, the Fed is easing rapidly. But the reason they are easing at a faster rate than Greenspan ever has before, is that the fundamentals are deteriorating more rapidly than he's ever seen before.
Possible explanations for AMAT at 56 today are:
1. investors who want to be in tech, are fleeing tech sectors where the fundamentals are truly frightening, and using AMAT as a "safe haven".
2. investors are seeing a bottom in the fundamentals next quarter.
3. investors are hoping that the semis, even if semi demand and ASPs are falling sharply, will cut expenses everywhere except in capex, and (at least) tech buys will continue strong through this downturn. That is exactly what Intel is doing.
4. investors are remembering the 10-bagger from the 1998 low to the 2000 top, and they don't want the train to leave without them.
The reason I don't find the above convincing is (and here's where I knock down my straw man):
1.if 34 was this cycle's low, a 10-bagger would mean a peak price of 340. That works out to an absurd P/S ratio, (but then, so did the 2000 top.)
2. "Forced buying by tech investors" is a myth. Mutual funds can (and usually do at bottoms) increase their cash. Margin debt bottoms when stocks do (and peaks when stocks peak). The 2T$ on the sidelines isn't forced to buy stocks, and can stay where it is as long as it stays scared (as in Japan, from 1990 till today).
3. I find it highly unlikely, that investors are smarter now, at predicting the future and understanding the cycle, than they were in all the previous cycles. Why should there be any expectation that people will learn what they haven't learned last time, and the time before that, and the time before that? In fact, events of the last two years have convinced me that investors are more irrational, more likely to engage in herd behavior and wishful thinking, more short-term, than I had previously thought. How else can you explain charts like this: siliconinvestor.com
So, my best explanation for AMAT at 56 is:
1.Market sentiment swings back and forth from manic to depressive, for no good reason, and usually overreacts in both directions. We've seen the upside overreaction, last year, and in the last 2 weeks. We haven't seen the downside overreaction, yet.
2. Since stocks peaked, more than a year ago, money has been franticly hopping from sector to sector, looking for Safety. One by one, all the Safe Sectors benefited, for a while, until their safety proved to be an illusion. Remember, not very long ago, when CSCO and EMC were supposed to be immune to macro events? Semi-equips just haven't had their turn yet to prove that they aren't immune.
3. We've just seen a very long Bull market, when sentiment (consumer confidence) and valuations (PE on the S&P 500) stayed above the usual historical ranges, for a prolonged period of time (years). The Bull is dying, but he isn't dead, and it will take a while longer to kill him. His memory lingers. There appear to be a few BuyTheDippers left, who didn't lose enough money buying the May 2000 and December 2000 dips. And there are even a few MomentumInvestors left (who I thought were extinct).
JS@SOMTAMATBs.com |
