Interesting discussion of Micron on Bill Fleckenstein's Rap.
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This Preannouncement Rated R: Bubbleonians Not Admitted Unless Accompanied By A Paid-Up Rap Reader
Let me preannounce right here and now that you're going to have to follow the bouncing ball, given all the news and action we had between yesterday's market close and today. Please count down a couple of lines, either if you want to skip this unappetizing prologue and go straight to the meat and potatoes of the early action, or if you are currently under a doctor's care for preannouncementitis, a malady that causes tightening in the chest and involuntary twitching when its sufferers are overexposed to the p word. My feelings will not be hurt. I share your pain.
June Is Bustin' Out With Preannouncements Here goes. You remember, of course, that JDS Uniphase (JDSU) reported at yesterday's closing bell and sawed next quarter's revenue guidance in half. United Microelectronics (UMC), the second-biggest semiconductor foundry in Taiwan, preannounced next. Then, later in the evening, there was a preannouncement from Philips (PHG), the number-three electronics retailer in Europe. Nortel (NT) also preannounced. The most horrific preannouncement came from semiconductor maker International Rectifier (IRF). Only about a month ago, this company led people to believe the world was rosy. But the boys and girls on Wall Street don't like it when you blow your credibility. In the early going today, that stock got hit for 40%. (Micron Technology shareholders, please take note.) Too bad the only consequence for excessive optimism isn't just a Pinocchio nose. At least that can be rectified with plastic surgery.
Where's My Happy Meal? And it wasn't just the techs. McDonald's (MCD) preannounced. Procter & Gamble preannounced. Interpublic Group (IPG), the big ad agency, preannounced. In the last six days, there have been about 44 pre-announcements, and most have been terrible.
False Armageddon Preopening, considering the volatility that ensues on an expiration Friday, it looked as though Armageddon was at hand. The Nasdaq futures were down about 1 1/2%. But between a half hour before the opening and about two hours into the day, there was a huge turnaround. After seeing an initial rally dip off the opening, we had a big straight-up move that took the Nasdaq futures to about 1750. That was a rally off preopening lows of almost 5%. It looked as if there was a fair amount of short covering going on.
Splatter, Bounce, Fall After the early-morning ramp job, there was a lot of flopping and chopping up near the high of the range for the day. But the market sagged going into the bell. That said, it closed nearer to its best level of the day, even though that was a negative number. Consult the box scores for what index did what. The action today was a mishmash, not particularly notable. It is worth noting, however, that the market managed to hold together today, given the barrage of bad news that burst forth in the last 24 hours. On Monday, we'll know if today's expiration buoyed the market, in which case it's due for a splatter, or whether today kicks off a bounce that lasts a few days. Either way, the market's headed for the falls.
Away from stocks, we had some mixed action as well. Initially, the metals and the euro were up on the day, but they all flipped around and went negative. Fixed income was a mixed bag, with the long end down and the short end up. Oil was down. Suffice it to say, there was lots of motion in all markets today.
Scram, Easter Bunny, Colin's Here In the economic news this morning, we learned that industrial production fell eight tenths of a percent in May. This is the eighth drop in a row, and the first time that's happened since World War II. Industrial production is now at its lowest level in about 18 years. The University of Michigan released its consumer sentiment survey, and we got the government's statistic du jour, the CPI. All were non-events. Given the fact that inflation was deemed to be okay, the drumbeat started early that Easy Al was going to jump in and save the day yet again. Surprise. Every time the market starts to get in trouble, people believe Sheriff Easy Al will ride into town on Trigger and start firing more bullets. One of these days, you'd think they'd wake up to the fact that the first 250 basis points didn't do any good, and the next group isn't going to be much different. The problem has to do with excess capacity and mal-investment, etc., as we have set forth several times. The federal government has not issued Colin his sheriff's license, but he remains a wise commentator:
License To Bull "The CPI release will be used by every Wall Street firm as a basis for arguing 'the Fed is free to do whatever it takes to stimulate the economy' and to encourage people to buy risk assets. News flash: The Fed is always free to do anything it wants. It has exercised this freedom five times already. There has been no 'traction' to its efforts. It cut rates too soon and too much. Trying to prop up asset prices at absurd valuations as a means of stimulating aggregate demand is stupid because it is futile. No doubt, the Fed will give it another try. Watch for Fed governors and other talking heads to characterize the CPI release as 'encouraging' and 'evidence that inflation remains well contained,' etc. The problem will come after the Fed has spent more bullets (i.e., all of them) and the risk-asset markets keep falling."
Fleck Pronounces Micron Now for a comment about Micron and the DRAM situation. As people know, I like to use this company as a litmus test. At a few conferences recently, Micron suggested that its inventory is something less than $1.5 billion. That's its inventory, mind you. I expect Micron's quarterly revenues to come in right around $800 million. The worldwide DRAM market is about $17 billion for the entire year, so Micron itself has enough in inventory to supply about 9% of this year's global demand. Of course, that doesn't take into account the inventory at Samsung, Hynax, Elpida, Ifineon and the various Taiwanese producers. And, there is still production coming on. So, I expect one of these days Micron will have the same glide path as International Rectifier. When that day happens, maybe we will see sanity return to the rest of the tech sector.
'Managing Uncertainty' Finally, a brilliant observation from William O'Neil, proprietor of The People's Momentum Daily: "Successful stock investing is all about managing uncertainty and putting the odds in your favor. Nothing's guaranteed." Even though I consider momentum investing (of which he is the lead practitioner) an oxymoron, Mr. O'Neil has been extraordinarily successful. His comment has hit the nail on the head. When was the last time you heard anyone on Wall Street describe the process in this way? |
