From Lance Lewis - formerly Prudent Bear
Asia was mixed last night, but Japan was under pressure as the Nikkei fell 2 percent to once again barely hold at the 10,000 level. Europe was off a percent this morning, and the US futures were a touch higher off a bump up in durable goods orders. We opened up and tried to rally. The consumer confidence number for January hit, and it showed a 2 percent rise. That caused a bit of excitement for all of half a second before sellers swamped the tape, and we dove to new lows for the day. The rest of the day was basically non-stop chain selling. We finally found some footing in the last thirty minutes or so of the session but still went out virtually on the low of the day. Volume was extra, extra beefy (1.8 bil on the NYSE and 1.9 bil on the NASDAQ.) Breadth was 2 to 1 negative on both exchanges.
TXN reported its loss last night, but guided Q1 (up) to a whopping breakeven. TXN's CFO said, “We think we're coming out of the downturn at this point and getting ready for revenue growth.” That's all well and good. Maybe he's right. I doubt this is anything more than a blip in their business before things get worse again, but let's give him the benefit of the doubt. TXN trades at 430x its '02 estimate (which they likely won't even make) and 6x sales. The degree of growth being discounted is simply not going to happen. Consequently, the business could bottom here, but the stock could go lower. That, incidentally, brings up an interesting dilemma. The stock market is currently around 130% of GDP. So, it's still bigger than the economy. In fact the argument can be made that it IS the economy. Thus, when stocks bounce, the economy gets dragged along behind it and bounces with a lag. And when stocks go down, the economy reacts to this and slows with a lag. In a normal world, the stock market is supposed to be a sideshow that reacts to the economy (a stock market capitalization of 60% of GDP has been the norm for this century), but this is not a normal world. It's a post-bubble world. To make a long story short, even if TXN's business is bottoming here, its stock is still too expensive. So it (like the rest of the stock market) is headed lower, which will eventually cause problems for TXN's business. It's a vicious cycle that can only be broken once stocks have reached valuation levels where they are dirt-cheap and more in-line with their historic relationship to the economy. It's a cycle like any other. But I digress. Back to TXN… The stock was one of the few to actually trade higher in the semi area today, and rose 6 percent.
As I mentioned yesterday, TXN announced it was cutting capex by about 55 percent this year. Early this morning, the semi equipment stocks seemed to shake this news off, but as the day wore on, the equips began sliding along with everything else. The damage wasn't too bad though. AMAT, NVLS, and KLAC were all down around 3 percent. These capex cuts we're seeing out of semiconductor companies are no big shocker, what is the surprising thing is where most of these semi equipment stocks are trading in relation to the amount of business out there (not to mention the fact that that business continues to shrink.) The SOX fell 2 percent.
Elsewhere computer services were under pressure again with ACS slumping 4 percent to a new low for the move. IBM was also whacked for 5 percent and a new low for the move. It probably didn't help IBM any that its financial maestro, Lou Gerstner, finally announced his retirement today, although the fact that it was approaching had been well telegraphed for a while now.
Basically, tech was whacked across the board. Even mighty AMZN succumbed and fell 8 percent.
Financials were smoked, as Enron and other recent blowups finally seemed to catch up with the market. For today, at least, anything with questionable accounting practices, big derivative exposure, or a generally complicated financial structure was being dumped and dumped hard. The BKX and XBD both fell 5 percent. The derivative king (JPM) fell 7 percent to a new low for the move and is closing in on a new 52-week low. That's rather ominous, considering that so much derivative exposure is concentrated in that one entity. BAC was smoked for 7 percent. PNC (which is a financial services company) announced that it was going to restate all of 2001 earnings. People didn't seem to like that and smashed the stock for 9 percent. GE fell 4 percent to a new low for the move. FNM and FRE slipped 2 percent.
Accounting worries weren't just limited to some of the financials. TYC (a diversified manufacturing company) was ripped for 20 percent and a new low as rumors swirled about questionable accounting practices. Of course, when you're incorporated in Bermuda (as TYC is) the first thought that pops into your head is not one of “an overly conservative organization.” Elsewhere, pipeline maker and energy trader WMB was spanked for 22 percent after it delayed the release of its earnings report, which prompted speculation of possible accounting problems. Obviously, the energy trading business has a bit of a bad connotation post-Enron anyway.
Oil fell 47 cents. The XOI and OSX both fell 2 percent. Gold rose $2.90 (and yes, you did read that correctly to say “rose”). The HUI rose 4 percent to a new high for the move, as the gold shares were generally frisky across the board. The US dollar index slipped a touch. The yen was flat, and the euro rallied back above the 86-cent level. Treasuries began the day lower but reversed to end higher as the yield on the 10yr fell to 4.97%.
Tonight, we have the State of the Union address and then tomorrow we get the initial guess at Q4 GDP as well as the FOMC. Today's action was very unusual and noteworthy. It was unusual in that not only do we have the State of the Union address tonight, but we also have the FOMC tomorrow. We rarely see selling in front of these events, especially when the powers that be are on the side of the stock bulls as they are currently. Secondly, it's the end of the month, where we almost always receive a jamjob that squirts us higher. Lastly, people actually appear to be caring once again about accounting (I know it sounds funny, but for so long companies were doing basically anything they wanted. And the market was applauding them for it.) To sum all that up: something is different. Whether the business-as-usual fantasy rally that we discussed yesterday will show up tomorrow or not is unknown, but today's action is certainly a wakeup call that many of the usual games suddenly aren't being played anymore. An acceleration to the downside could come at any time, so be very, very careful. |
