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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets! -- Ignore unavailable to you. Want to Upgrade?

To: ET who wrote (3971)	12/18/1997 10:34:00 PM
From: Jay M. Harris	Respond to of 10921

Et, I'm not posting to "fake people out of their stocks". In fact I stated that I would ride CYMI and Veeco down to 1X revenue. John Chambers on the Cisco call did mention that Japan was a fundamental problem and risk for Cisco. I still believe Cisco will meet their numbers, however, not because of the pacific rim! Cisco will hit numbers because of circumstances unique to Cisco. Et, much of the success of the US capital equipment industry came from exports to the pacific rim over the last 7 years. The US is selling capital equipment to the developing countries, and they are exporting cheap consumer goods to the US. This is why inflation is up only 1.8% on the CPI over the last trailing 12 months with the unemployment rate only 4.6%. We are using the global labor supply for semi skilled and unskilled labor which is helping to restrain wage growth and renduring the unemployment rate obsolete as a cycle tool. While I may not agree with the % probability of a US recession in 1998 or 1999, it is certainly a risk that is increasing. Deflation is happening in many commodity markets around the world and is showing up in nearly every goods index. The real fed funds rate is currently 4% which is 1.5% higher than the historical average. My point is that the Fed is currently very tight. Also, the shape of the Yield curve is very flat which also portends very slow growth. Frankly, I think the fed will have to ease in q1 1998. The real fed funds rate is too high for the deflation mentioned by Cary which is currently showing up in prices all around. The Japan 10 year government bond is yielding 1.5% . I think deflation is on Japans mind. The Japan Semi equipment co's (TEL) become more competitive as their equipment is much cheaper reletive to US companies given the huge rally in the US dollar relative to the Yen. We have better equipment, but more expensive, and the tigers are broke. As you know deflation always exists in semi land (Moores Law). However, were talking deflation today that is crushing margins and associated business models short term (12 months). ET, I will tell you that I 'm using a 95% probability that we will have a semiconductor and equipment recession in 1998. I'm not suggesting that people sell their stocks because this industry will grow to $300 billion by 2001-2002. However, I'm strongly suggesting that people DON'T average down yet. Please read the name of this thread. This is a very real charactorization of when to buy equipment stocks. Also, they usually trade at 1X revenue once the blood is running. In closing, I hope people have a handle on the sub $1,000 PC (less silicon content with 90% functionality and currently up to 41% of household purchases) and the impact of the direct model PC OEM distribution(carrying no channel inventory). IMO this is impacting the semi industry big time. I just can't support it with fundamental data in my posts because its too damn new to analyze and it is currently exploding! It's just a gut feeling of mine that this is hurting semi land. My final risk that is worthy of mention is the distraction of US MIS execs on the year 2000 problem. This is a very real issue. Dr. Ed Yardeni thinks it is the equivelent of a $600 billion global tax to get the global IT industry into complience. I view this at the very least as a distraction that is taking corporate capital investment for product upgrades out of IT budgets as executives guage the lowest cost solution. This should also impact semi's negatively over the next 12 months, but help them over the next 3 years. Jay