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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (25152)	3/8/2005 10:42:48 PM
From: Earlie	Read Replies (3) \| Respond to of 116555

Mish: Over the past several months, I have been warning that tech sector fundamentals have been deteriorating even as tech sector stocks have soared. Putting it in laymans' terms, global semi production capacity has continued to expand,even as the two main end markets for semi products, PCs and cell phones have become completely saturated. How bad is it? Well even my goat recognized that the PC end markets had pretty well run their growth curves to ground about two years ago, but of course, the bulls still pointed to the "ravenous global appetite for cell phones", so the party continued. This particular fabrication should have died following Christmas of 2003 when massive cell phone inventories (many tens of millions) sailed through the selling season unsold and it required equally massive efforts on the part of the big retail chains to extract the tennis ball from the toilet bowl throughout the spring of 2004. As we moved into the late spring of 2004, already burgeoning Chinese cell phone manufacturing really got the ball bearings oiled and domestic Chinese production of a mind-numbing variety of cell phones simply exploded...... perfect timing.... as Chinese retail demand for cell phones fell off a cliff. This represented extremely nasty news, as most of the big international cell phone manufacturers had ballyhooed "expanding Chinese demand" as the reason for their bullish forecasts and continuing heavy production. By the end of 2004, it was apparent that the global cell phone markets were piling up inventory at an astounding rate. Personally, I forecast that post 2004 Christmas unsold cell phone inventories would EXCEED those of the preceding year and of course they did. No wonder retailers are giving them away to anybody who would sign up for any form of "plan". Two weeks ago, I mentioned that I expected the Q1 warnings period for the tech sector to be ugly and the last few days appear to confirm that perspective (see TXN's comments of yesterday as but one example). Companies can "jam the distribution channels" only so many times and there was a great deal of this in the pre-Christmas period as many tech companies chose this route to "make the year-end numbers". That was then, this is now, and the tarps on the lawns are no longer big enough to cover up the inventories. Prices are falling, and capacity utilization is being forced into retreat. It is noteworthy that few semi producers do well when their plants are not going full bore. Aside from the crummy fundamentals, the complacency ratios are also at or near historic levels, hence put leap options on many tech stocks are quite inexpensive. Not often that the market provides the Vaderian fraternity with so delightful a set of circumstances. I mentioned earlier that I was building up tech short positions and also continuing to add to gold positions. To me, both represent very low risk investments in the current environment. Best, Earlie