The latest from Fleckenstein (could have been written by our own jwSilverback <g>)...
________________________________________________
Poetic Waxing Buildup: Turning to the news, there is quite a lot to cover, beginning with Intel's numbers. I'll just cover this quickly, because what they did and what they're going to do is so obvious. Intel's inventories were up yet again, as were its accounts receivable. It cited strength in Asia, for two quarters in a row. So, inventories have gone up, and now the receivables are building. Why should that be happening? It shouldn't! What's very clear to anyone with a set of eyeballs and an ounce of brains is that Intel has been channel-stuffing, and that means a real problem for the company in Q2.
Regardless of what Andy Bryant says, it's just not credible that Intel would need this much inventory, and there's no reason why its accounts receivable should have popped as hard as it did. Likewise, it makes no sense that revenues at the company's architecture group (i.e., its microprocessors) should be up 14% year-over-year when we know PC units are down and ASPs are down.
Credibility Rap: So many things don't pass the smell test that I can't really fathom how anyone who knows anything about this could believe what Intel has to say. Its gross-margin improvement was clearly a function of building inventories. And, to repeat what I've said all along, though I expected the company to have trouble in the revenue line, I figured it would make the number because it said it would be building inventory. Now, Andy Bryant has backed himself into a corner by stating that it's only going to build inventory a bit more. This is a ticking time bomb. Maybe Intel can make it to Q3, but my guess is that it will blow up in Q2, and all the stuffing will come for naught.
Bombed on Chip Ripple: If one listens to what Veritas has said, and to anybody else who actually sells something to a customer that's on the front line, there's no IT spending pickup, and there's not likely to be any until '03 at the earliest. That's pretty much what all the software guys have been saying. So, we had a little inventory building, and that little ripple has tumbled through the chip market and been extrapolated into the next boom. Well, I've got news for people who believe that. There ain't no "there" there, and the second half is going to be a disaster. The only question is, when do people figure that out?
Affix Ginger Patch: Turning to the twin titans of market manipulation, Alan Greenspan and Peter Fisher, let's start with Mr. Fisher. For those of you who don't know about the self-proclaimed market "helper," there is a very enlightening, although nauseating, must-read article in today's Wall Street Journal titled "Inside Treasury, a Crisis Manager Amasses Influence." It describes his role as follows: "When companies, industries or markets break down, it is Peter Fisher, the Treasury's Undersecretary for Domestic Finance, who makes the first assessment of the damage, and whether the government should try to repair a broken cog." So you see, this guy thinks he knows how to fix what are supposed to be free markets.
Affix Arrogance Patch: Because I've got so much to say about Alan Greenspan's speech, I'm not going to reprise the Journal article in totality. Let me just try to illuminate the arrogance of its clueless subject by reprising one of his quotes: "I'm well-known for my role in LTCM [he means Long Term Capital Management] . . . but what I did for the options for Y2K was so much wilder." Then the paper notes that his intervention actually made the Fed $6 million in fees.
What this "crisis manager" did with his pal Al around Y2K was to pump reckless amounts of liquidity into the system, thereby blowing the top off the Nasdaq and the S&P. Just go look at a chart. And this guy is so clueless that he doesn't even realize they blew the top off the biggest bubble in history, and now he laughs about it. Those are the guys who are supposed to inspire confidence?
You Wreaka!: Turning to his boss, just about the time you thought that Greenspan could not say anything more mind-numbing, today he categorically proved his complete and total ignorance of what happens when the Fed prints and creates too much liquidity. I'm only going to excerpt the little bit of his congressional speech devoted to the housing market, because it so nicely illuminates his faulty thinking and his lack of understanding of what damage the Fed can wreak when it turns loose the spigots. To get a firsthand knowledge of his limitations, I urge you all to read the full text of his speech, which can be found at the following link to the Federal Reserve Board.
The Count of Consistency: He begins speaking about how the ongoing strength in the housing market has "raised concerns about the possible emergence of a bubble in home prices." Now, this is hysterical, having him talk about bubbles and pretending he's an expert. When we had the Nasdaq bubble raging, he professed ignorance of it until after the fact, saying that something would have to collapse by 40% in a short space of time to become a bubble. After that's what the Nasdaq did, he still said there was no bubble. So, he can't tell either when one is occurring or recognize it after the fact.
Anybody Home?: Then he lists several points about why the housing market can't be a bubble. He starts out like this: "However, the analogy often made to the building and bursting of a stock-price bubble is imperfect." Then he goes on to cite the following factors: "substantial transaction costs," "the seller must physically move out," which "often entails emotional costs," resulting in "an obvious impediment to stimulating a bubble through speculative trading in homes." So, I guess we've never had a housing-market bubble in the past, huh, Al? And I guess those impediments also kept the Japanese from having a housing bubble as well!
6 Rms., Bubble View: From there, he proceeds to say that the turnover in home ownership is so low that it stops speculative activity, i.e., there's not enough volume. Then he opines that arbitrage opportunities don't exist, and if there was a bubble in a local market, it couldn't spread. In any case, while spouting all these specious arguments for why housing can't have a bubble, he never ever acknowledges the fact that large bubbles in housing are a function of reckless monetary policy, just as the bubble in stocks was a function of his reckless monetary policy.
He acts as though these events are just self-igniting. His cavalier attitude shows a staggering disregard for what easy money does, which is I guess why he's kept the spigots open forever and never seems to learn anything. I suppose since he admitted in a previous speech that he didn't know how to define money, we shouldn't be surprised by his failure to understand that waaaaay too much of it causes bubbles.
Pillars of Salt: Mark my words, ladies and gentlemen. Before this year is out, when people are forced to give up on the hope of a stock-market rebound and an economic recovery, we'll look back and see these two chieftains, Fisher and Greenspan, for the irresponsible individuals they were. Then at last, blame will be rightfully placed on the architects and babysitters of the biggest speculative mania in the history of the world. |
