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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Sam who wrote (47548)	4/24/2010 6:53:20 PM
From: Jacob Snyder	4 Recommendations Read Replies (1) \| Respond to of 95415

re: chips as consumer discretionary: Large and growing demand doesn't imply that a product has to be a consumer staple. Chips are a consumer discretionary, because demand is tied to the economic cycle, and can radically increase/decrease with macro cyclic ups and downs. < A lot of tech stocks got super hammered in the last downturn> Yes, that's exactly what happens to the stocks of consumer discretionary companies in a severe recession. The surprising thing was that even the stocks of consumer staples got hammered as well. But not as badly. SOX went from 550 to 168, a 69% decline. PPH (pharm, a classic consumer staple, along with recreational drugs like alcohol and tobacco), went from 86 in early 2007 to 44 in 2009, "only" a 49% decline. Clearly, it was better to be in drugs than chips, as the bull market got old and died (or, perhaps, was murdered in his prime by a gang of bankers wielding credit default swaps). <there is a great deal of pent-up need and demand> The concept of "pent up demand" implies there is something inevitable and inherent, about future demand: if it isn't happening now, that means it is 100% certain to happen later. It's a comforting thought. But there are so many counter-examples...like Cuba and cars. In 1960, their access to new cars got cut off. So they just kept driving their 1950s-vintage cars, decade after decade. The economic and political realities, meant that the "pent up demand" for cars in Cuba, stayed potential. Decade after decade. Here's a thought experiment. Imagine that, today, and for the next 12 months, everyone on the planet were forbidden to buy a new cellphone, or computer. We'd get by. A few people would be inconvenienced a bit, but life would go on. However, if you tried doing that with food (or beer or Viagra, or any other consumer staple), then civilization as we know it would collapse. Mass rioting in the streets and boardrooms and bedrooms. One odd thing I've noticed, is that ipods are treated like jewelry. Watch a group of women comparing what their newest gadgets can do. They look and touch and fondle and stroke and exclaim in joy, just like my parent's generation would compare the size of diamonds in engagement rings. 4000 years ago, women would hang gold coins from the fringe of their cloak and hat, to show they were desirable women of wealthy families. Same thing. Jewelry is another classic consumer discretionary. The bull market is intact, as long as the SOX continues to outperform sectors like pharm, (this chart looks just like the previous XLY:XLP): When that ratio starts tipping the other way, and it will, it'll be time to exit tech, and go to high-yield pharm stocks, gold, gold miners, and cash. Treasuries maybe, but only TIPS. Since Merck has a better balance sheet, and more secure cash flow, than the U.S. government, I think it's safer to hold MRK than Treasuries. If inflation gets out of hand, and the government's interest payments start to swallow up the rest of the federal budget, they may find a way to wiggle out of their obligations.