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To: Les H who wrote (162641)	4/27/2002 6:54:17 PM
From: Les H	Read Replies (1) \| Respond to of 436258

tech demand risk while inventories high news.cnet.com

To: Les H who wrote (162641)	4/27/2002 11:54:57 PM
From: Earlie	Read Replies (3) \| Respond to of 436258

Les: Many thanks. The sobering commentary reflects what I have seen (and commented upon on this thread) over the last several months. As you are well aware, most of my research effort involves simple "grunt work" aimed at providing some insights as to how well particular tech products are selling. The premise is simple..... if a company's products are not selling well, or the company is not able to price its goods such that a profit is made, then that company is likely heading for trouble. Additionally, I am interested in debt loads. If the company is humping big debts and its profit margins are falling, sooner or later its assets accrue to the debtholders, which is rarely positive for the associated common stock. Ever since 9/11, N. American stock prices on the whole have responded vigorously to a few major ideas, primarily; - the Fed's massive injection of liquidity is creating (or will create) a "rebound" in the economy. - the demise of corporate buying isn't a big worry so long as the consumer continues to borrow and buy. - the tech sector, the preceding bull market's driving force, will rise again, and probably in the near term. - global problems can't spread to the U.S. - the accounting difficulties aren't all that important. From my perspective, each and every one of the above are mirages and represent incredibly weak pillars underpinning current elevated stock prices. Reasons for thinking this way? -The Fed's historic interest rate reductions and liquidity excesses have indeed kept the consumer borrowing, but have engendered minimal impact on non-existent corporate cap expenditures, where a profits collapse continues. No profits equate with debt servicing problems and continuing waves of lay-offs, hence it is merely a matter of time before the consumer heads for the storm cellar. Reduced consumer spending will gut both the U.S. economy and the stock market, and it is likely to occur both abruptly and soon. - The evidence of a "rebound" is negligible. In fact, most evidence points to a continuing slide in economic activity. This situation is particularly noticeable in the tech sector, which in blunt terms, is a mess. Semi product end markets are sodden and "excess capacity" rules. Yes, a few players will survive the carnage, but much triage must be completed first and this will take many quarters. Most of the "tech sector" will provide an investor's cemetery during this period. - The deterioration in America's corporate balance sheets over the last few quarters has been breathtaking...... and has not been noted by the investing public. Balance sheet deterioration tends to be logarithmic rather than linear, something the investment public seems not to understand. - Anecdotal evidence suggests that foreign investors are beginning to repatriate their funds. If this continues, it is a disaster for the buck (unless a benevolent tooth fairy decides to finance the current account and trade deficits in their stead). It is hard to conceptualize a scenario in which this repatriation can or will be reversed. - When it rains it pours. Just when companies need bogus accounting most, it is too hot to employ. Worse, the accounting excesses of the past are floating to the surface like bloated drowning victims, polluting investor confidence. Reported numbers have a nasty gauntlet to run over the next few years. Now do we buy puts or calls, given the above? (g) Best, Earlie