True and great point! Didn't that article a while back say they had 40% exposure to some high risk someting or other and a minor miscalculation of risk could bankrupt them? It was a long time ago and I have since forgotten the specifics.
While at work, I did some pondering......
I have been digesting all the news and FA spins and have come to an alternative bullish possibility....
Interest rate cuts allow telecoms and others in deep debt to survive and bail themselves out. They won't be buying any hoards of new equipment but they won't go under right away like they were going to before.
Commercial shorts are covering because they feel that the SPX as a whole, ( not the NDX ), is nearing their computed fair value. They aren't bullish but they feel the risk is no longer worth playing the short side heavily, they are basically neutral and we are seeing them cover hence the bounce. They are increasing shorts in NDX though since it should be the last to recover for obvious reasons. FA wise, I have to agree with them as brick and mortar as a whole is not really that over priced except for the gorilla retailers, some Banks, GE etc. The scan I ran last week showed there are plenty of stocks with PEs in the single digits with earnings and even more with PEs under 20.
NG prices should recede as inventories are brought back on line. This will make electrical power cheaper which should help factories increase profit margin. Also, job cuts and reduced output enables lower payroll costs ( highest paid probably got fired first), and less output means fewer factories running thus lower costs.
Huge inventory write downs and lowered forward guidance makes it easier to hit future numbers. They also probably low balled future guidance, why wouldn't they since the stock prices are already down and the market expects the worst. Investors have short memories and will celebrate beating horrible estimates the next couple quarters. A year from now, it should be easy to beat this quarters numbers since they are so low. An amazing Kreskin prediction of the headlines from earnings releases next year, "Profits jump 100% over last year." "Earnings triple in amazing recovery" etc. and people will buy it forgetting that last year the earnings were 20 cents, this year dropped to 2 cents and next year will be 4 cents. All they will see is that they doubled and they will forget that they are still down
80% from 2 years ago.
It suddenly occurred to me that AG may be printing money like it is confetti and dropping rates until we devalue on purpose. He WANTS the dollar to drop. A weak dollar will increase exports and let the rest of the world consume and bail us out for once instead of the other way around like in 97, 98 etc. Of course the Fed and Treasury won't say this but companies have been complaining the strong dollar has been hurting them for some time. He doesn't care about inflation right now. He will deal with that later after he pulls us out of the dumps, IF, he pulls us out of the dumps.
I am not saying AG will be successful or this can all happen, but they are very real possibilities. If AG does pull this off, think about it, he WILL go down in history as a genius. HE knew we were in an irrational bubble that needed to be popped. Under the pretense of fighting inflation ( which was real despite the naysayers ) He dropped the market to where it was two years ago, got rid of much, not all the excess hype trash, redistributed the wealth to his buddies, and then MIGHT be able to get things rolling along and churning smoothly again. If the market starts climbing too fast as inflation is running afterwards, he can raise interest rates which will cause the market to scream bloody murder as they recall January 2000 and stop in it's tracks. It may be wrong, but AG will have shown that he should and will not be ignored again. The market will now know that he can stop this nonsense anytime he wants to with a few rate hikes. Again, it may be wrong, but even the naysayers now know that he yields that kind of power and that higher rates do affect techs not just the old economy stocks and that the DOW does matter and all those other things they were saying at the top. They all said this time is different and now they know that it isn't. A small hike in rates will pack a lot more punch now.
As for survivors and who might lead us out of this. Some sectors will still be required to keep churning even in tech land. Storage of data requirement is large. More players entering arena though so margins may come down and the one I keep hearing is the best storage device is private, not publicly traded. Will they knock down EMC and NTAP? Not sure but they can all stay in business at least.
Oils will continue to do well since they are lean and mean from the bad years and oil seems to have found a steady 25-28 a barrel range. This will
shore up the SPX and DOW's earnings numbers as a whole years worth of earnings filter through. As Terry said, the inflation will likely help the
stuff like commodities etc too if the higher oils prices don't kill the providers. The unknown here is the global market influence. Cheap Canadian grains etc putting pressure on our farmers products.
AMD and INTC should do OK although again, margins are going in the toilet. Don't know about other corporations but on our base, there are more P233 computers than there are PIII 700s or higher. A lot of upgrading will be required over the next few years. Of course MSFT should benefit as Win2000 will come on each machine. Private sector will also slowly upgrade if they still have jobs.
Anyone know who makes the most common or best cable modems? Last mile buildout should continue as cable vs DSL war continues. With telecoms choking in debt, the cable companies will try to take advantage of this window of opportunity. Out here, cable is still moving quickly trying to
beat Direct PC to our doors. Only those within Boise City limits have broadband. I imagine the race is on anywhere that isn't hooked up to broadband yet. Most people are too lazy to switch so once they are hooked up, the one who gets there second wont get market share. The winners short term will be the cable modem makers but I haven't researched them yet to see who they are or what their valuations are like yet. Imagine all the Dial ups that will be replaced and from what I hear, cable modems are $300 a pop. This will only be a short term good play but it could force a temporary run.
T's Media One if they spin it off fast enough, AOL and the other cable and dish networks will become the Ma Bells of the future IMO. (Yes, I am
bullish on Cable -g-) Digital Cable coupled with the latest "smart boxes" ( Made by SFA or MOT depending on where you live) enable telecom where you no longer require a phone line, offer Movie Rental/online viewing on command, web surfing both on PC and through the TV, among other little gadget type tricks like live TV pause, record, rewind etc. Phones are dead and will be replaced with these or else the satellite dish equivalents. JMHO This will be a steady revenue subscriber type income and recurring, easy to compute etc. and I imagine the conservative older crowd will move in here to park money later in their life cycles and these will eventually pay a dividend once all the buildouts are done and over.
I think QCOM will survive but will come waaaaay down in price first. It is obvious to everyone except QCOM longs that CDMA buildouts are going to be delayed for many many years. Europe has made it clear they are in no rush, Asia has made it clear that they will delay and our telecoms here are in no position to be building out new stuff anymore. Only those blinded by greed still believe that any of this will happen anytime in the near future. Heck, by then, a new technology may rise form no where. There is certainly every incentive to come up with the next standard since the licensing fees are easy money and you don't even have to make anything yourself.
Now even with my more bullish outlook, I still think we double bottom sometime in the next 3 months and still think it could come in the next few weeks as earnings warnings come around again. PEs of 30 - 80 on negative growth and companies admitting that they see no turn for the rest of this year is not the things that turns are made of. We need to go back down. I am no e-waver but this one is pretty easy even for an amateur like me. We have made 3 waves and are now in the 4th. That means we still have a 5th coming. Bear markets have 3 phases and from the discussions here, it was pretty plain we were only in the second phase. We have another one coming. This is our brains. This is our brains sniffing glue. Any questions?
Now none of this has anything to do with the short term rally we are seeing and things will get a lot uglier before they get better, market looking forward or not. This view is taking the large job cuts as a positive due to weakening labor costs ( take a pay cut or take a walk since there are plenty that want your job now), and ignoring that all those that get laid off aren't consumers anymore able to buy goods. It also is looking past this year's record low water problem here in teh west that will raise energy costs short term and is "assuming" next year will have normal rainfall and snowpack to get power costs back down. In other words, this is for next year, not this one.
As mentioned before, double bottoms, which almost always occur and especially after the size of this selloff, I fully expect, occur between 6 and 9 weeks apart. That time frame points to the Fed meeting till mid June. That would be the time I would be looking hardest for a hard down, 5th wave.
Good Luck,
Lee |
