Mike, you gotta love this commentary from Billy:
Today he just couldn't resist sticking it to them.
---------------
June 10, 1998
Market Rap with Bill Fleckenstein
About face
Worldwide woes Asia got
shredded last night and
Hong Kong really took it on
the chin, losing nearly 5
percent. The currency
problems we've been
discussing lately are
partially to blame; the weak
yen has obviously caused a
great deal of concern about
what the Chinese may or
may not do. Ultimately,
there's no way out of this.
Either a real currency
debacle will develop or the
Japanese will have to raise
rates (which will trigger a whole new set of problems).
The situation is getting worse, not better. Last night, for example,
Chinese officials jawboned the Japanese government to prop up
the declining yen, an indications of how serious all of this is. It
was only three months ago that Wall Street was busy chirping
"Asia was behind us". Now it's apparent how foolish those
pundits were.
The Russian stock market, blasted yesterday, was hammered
again today. The Australian dollar got pounded as well. Gold
dropped about $5 overnight, but rallied back to break-even this
morning--a potential harbinger of strength. If gold can withstand
yesterday's comments from the lame-duck head of the European
Central Bank and the Australian dollar plunge, maybe it will make
a solid bottom, as the world continues to deteriorate from a
macro-economic standpoint.
Here at home, Lattice Semiconductor (LSCC) got pasted this
morning, down about 30% after they pre-announced their
earnings would not meet expectations. It was only about six
weeks ago that they previously pre-announced that the next two
quarters were going to be poor (watch out for Altera (ALTR) and
Xilinx (XLNX)).
More bad news on the pre-announcement front Although
most major brokerage houses following Lattice cut their ratings,
most of them remain positive. For example, Morgan Stanley
analyst Mark Edelstone cut his rating to outperform this morning.
The stock has gone from $70 to $27 over the last nine months,
and only now is he cutting it--and only to outperform. (It goes to
show you how slick these analysts are.)
Western Digital got crushed this morning as well. The stock
traded from $15 to $11, down from around $50 late last year. I
think this points out the danger of the "What me worry?" attitude
Wall Street analysts and stock speculators have had--i.e., all the
bad news is in the price and things must be getting better. This
was what analysts were saying about Applied Materials (AMAT)
about three weeks ago when the stock was at $38. The same
mood was prevalent before Hewlett Packard blew up, and before
the string of tech declines over the last three weeks. This macho
attitude has re-emerged in the last five days, but maybe now the
Lattice and Western Digital announcements (and the others sure
to follow) will sober some of these knuckleheads up.
Wall Street moved lower in the first 45 minutes of trading before
climbing but bonds had a firm tone all morning, up about 5/8 of a
buck. Both the stock and bond markets staged rallies leading
into Alan Greenspan's 11:00 a.m. speech before Congress,
which was a non-event, by the way.
The selling today was particularly pronounced in technology.
With no fundamentals, that should surprise no one. The Sox was
the lead sled dog to the downside, dropping about 3 percent in
the early going. Parenthetically, I sometimes get e-mail asking
me why I keep harping about the problems in technology. I talk
about them because Wall Street won't. It's staggering how poorly
these businesses are performing and how rapidly they're
deteriorating. But Wall Street remains totally asleep.
The Last Hour
Give the super tanker a flu shot (with no apologies to Abby
Cohen) The last hour was a selling spree: The market basically
came off the highs of the day, hit the lows and then bounced a
little going into the close. Tech was a complete bloodbath and
the Sox index got crushed for about 6 percent. The Morgan
Stanley high-tech index, still a relative bastion of safety in buyer's
minds, only dropped about 2 percent.
It's interesting that yesterday's
pre-announcement stocks really got
roughed up. As I indicated earlier, Lattice
fell about 30 percent, as did Western
Digital; I think it's obvious now that
pre-announcements will have a larger
impact. Also, lest we only look at
technology, in the last few days Polaroid
has pre-announced, while Caterpillar, 3M,
Boeing, Motorola and Xerox have all
admitted weakness. These are all big
blue-chip companies; economic troubles
and corporate profit-squeezing is affecting
a vast sector of corporate America.
You would have to be a fool to think you can
buy stocks and profit from the troubles
(which have been predictable for some
time) occurring now. The only question is "When will it began to
matter?" The tongue-in-cheek title pokes fun at Abby Cohen,
who remarked about how the U.S. economy was a super tanker
and that any Fed actions would just be flu shots. But we have real
problems because valuations are so stretched and the best
economic times have already passed. We're heading for trouble
and pretending we're not won't make matters better.
As I See It
Looking out for No. 1 People seem to think Wall Street is out
there to help make them money, right? Wall Street tells you to
send them money and you'll wake up rich. But let me tell you,
most of Wall Street is out there to make a buck for Wall Street.
Case in point: Yesterday, Solomon Smith Barney's disk drive
analyst upgraded Seagate. This is interesting given what
Western Digital had to say last night (anyone who checked
around knew the disk drive business was a debacle).
Why do you think they did that? Well, it turns out that Solomon
Smith Barney will be the lead underwriter for Maxtor, a disk drive
manufacturer. Hyundai, which owns Maxtor, wants to flog it
because they need capital. So, Solomon Smith Barney
recommends disk drive stocks to make it look like there is some
action in the drives so they can make a giant pile of money from
corporate finance when they foist Maxtor on the public.
That's the way Wall Street works. Research analysts make
money on corporate finance. They don't make money buying and
selling the right stocks, which is obvious because all these guys
have buried their heads in the sand while their industries
deteriorated (I'm speaking now of the semi-conductor and
semi-conductor equipment tech sector and PC's). The average
investors are just sheep being led to slaughter.
All I can continue to say is forewarned is forearmed. If people are
intent on speculating and driving up stock prices, it's only going to
make the inevitable debacle worse. I'm as sick of saying it as
you are of hearing it, but until investors sober up, I've got to keep
talking about this.
The commodity barometer I also want to draw attention to the
huge collapse in commodity prices over the last month, which has
particularly accelerated in the last week. This is prima facie
evidence of a worldwide slowdown.
Oil is the most economically sensitive commodity. The reason I
used to be bullish (prior to the Asia melt-down) was that Asian
growth would have required much more energy. Now that Asia
has collapsed, there's an oil glut. It's interesting to note that while
the price of oil has broken almost two dollars in the last four days,
the transportation stocks have gone to the moon (because
obviously in transportation the biggest component is energy).
The crazy thing about this is transportation companies are
particularly GDP-sensitive. Demand is collapsing around the
world, economies are slowing down, and yet they rejoice in the
drop in oil. This is the same backdrop that is going to make the
world a whole lot less bullish for the transportation stocks. It's just
another example of the lack of thought apparent in equity
speculation, and further proof, shall we say, of future trouble (and
more proof people are trying to ignore it).
One last comment in the speculative trash department: Little
K-Tel records, which sort of inaugurated the 1998 trash crop, is
all the way back to $10. $4 is where the stock blasted off from
(topping at $40), which makes it nearly a round trip in less than
two months. It just goes to show you these little speculative flings
don't last very long.
I want to encourage those who haven't read my piece, "Can it
happen again?" to do so. As this market continues to press
higher and higher, the similarities between now and 1929 Crash
and the Tokyo market in 1989 only become more pronounced.
William A. Fleckenstein <fleckenstein@go2net.com>, special to StockSite. |
