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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Patrice Gigahurtz who wrote (83185)	5/15/2002 4:11:54 PM
From: Rob S.	Respond to of 99985

The thing about major business and equity flow cycles is that few recognize just how far the extremes will reach. At some point a critical mass of confluent events will be reached where "the next big thing" becomes a reality. That usually happens when a product category matures to become highly desired and cost competitive. I think this will likely show up much as it did during previous prolonged downturn periods: often predicted, seldom realized. Take the recent rebound in many semiconductor stocks. A lot of this was predicated on positive consumer sales numbers and the belief that this is causing a follow through in semiconductor sales. The problem with that "next big thing" is that consumer electronics sales effect few American companies, and mostly at the cost of high volumes at low margins. The much richer markets, such as communications and instrumentation, are still down and see little chance for a recovery during the rest of 2002. So U.S. semiconductor companies are going to see much improvement based on consumer electronic sales? Not on your life. Maybe if communications were at least modestly recovering or PC sales were also on a significant up trend, then the marginally influential consumer electronics category would absorb enough capacity that semi prices moved up instead of perpetually downward. Not until we get either the PC/server or communications equipment markets moving up substantially will we have seen nearly the return to good times that stocks prices still currently suggest. Does this look like a bottom of a downturn? Semi company P/Es closer to 50 than 20? (the low teens was typical of many previous downturns). Price to sales and other metrics similarly still inflated? Maybe government budget deficits and monetary policy will float higher valuations through the downturn this time around . . . but that remains speculative.