SAF:
When MOT came out with its recent nasty and very much unexpected (by the analysts) "warning", I was particularly interested in the market's reaction. Even though I expected much worse than did the street (see earlier postings), I was not short, out of respect for the cash torrent pouring out of Japan. Before the warning, the stock was trading just above $50. After the warning, it settled in around the same price, courtesy of the inevitable spin. So much for the impact of fundamentals. Of course, when IBM, INTC, GTW, et al can provide one set of declining quarterly numbers after another and the entire tech sector can warn of Asian problems, slowing sales, declining margins, stuffed channels, mediocre retail interest, bulging inventories, etc., what else might one expect?
All of that aside, and keeping the moniker in mind, I think it is finally time for all of us to terminate the daily shaving away of the bearish fur emanating from our hides, as I think the market has FINALLY put in its top and is rolling over. If this proves accurate, MOT will suffer doubly this fall. Not only will "Irridium indigestion" (inconsequential revenues and big debts) become apparent, but the market appears ready to fall on its sword (an appropriate analogy, given its dependence on Japanese dough for its current survival).
Certainly the signs all point to this. The junior stocks have gone "no bid" (in all markets), the breadth is non-existent, the Japanese are poised to raise their interest rates (September is our expectation), which will slow, if not cut off, the cash torrent, the June lows were violated ("floors become ceilings"?), and according to the Princeton Economic Institute, the recent fall from the July high to this week's intra-day low was the largest and quickest "first leg" (of a crash?) in many decades. Personally, I expect the accelerating earnings deterioration to become evident to even the blindest twits in Q3, which should administer a long overdue "Coup de Grace" to this tulip.
If this proves accurate, the next few years will prove ugly indeed, as a broken U.S. stock market will immediately cut off the frenetic borrowing that supports the current equally frenetic U.S. consumer purchasing. Already the trade deficit has gone ballistic and Abby's stupid comments that "Asian trade problems will prove minimal" are turning to dirt in her mouth. The economy has slowed dramatically in Q2, which should have been expected, given the stunning rise in inventories in Q1. The U.S, savings rate is almost nil, and U.S. household liquidity is non-existent. When the market starts to fall, the record levels of "margin" will ensure an overshoot to the downside. There will be an inevitable scramble for liquidity and the exits will jam up, as they always do.
But of course the authorities, led by Greenspan will not allow this to happen. They will lower interest rates and flood the system with liquidity. Sure they will. I'll bet the other side of that expectation. Greenspan already has an Excedrin headache vis-a-vis that nasty Bank of Japan, which continues to send him truck loads of treasuries to be converted into shiny new greenbacks. Soon, this will be accompanied by European treasury selling as the Euro comes alive. The Chinese (second largest holder of treasuries in the world) have enormous problems (massive inventories, burgeoning unemployment, the need to continue to privatize, and a bankrupt banking system) and are already experiencing difficulties in defending their currency which is under enormous pressure (devaluation,.....not if, when). They will not sit on their treasury holdings if a sell-off looks probable. Greenspan can't live with a wall of returning treasuries, so he will do what he has to do, which is hike the interest rates to keep it offshore. This will be just what the market doesn't need at exactly the wrong time.
This Autumn, it won't be only the leaves that fall. (YUK)
Best, Earlie |
