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To: Harry Landsiedel who wrote (69512)	12/6/1998 11:16:00 PM
From: exhon2004	Read Replies (5) \| Respond to of 186894

Harry: Relevant section is highlighted. I remember Intel saying internet based transactions were driving down costs but I don't remember the capital spending part. December 6, 1998 MARKET INSIGHT The Bubble Is Back, Compliments of the Fed -------------------------------------------------------------------------------- Related Articles The New York Times: Your Money Forum Join a Discussion on Investing -------------------------------------------------------------------------------- By KENNETH N. GILPIN his has been a very strange year. Consider these events: A 24-year-old woman shakes the presidency. A septuagenarian senator rockets into space. Stocks plummet for a couple of months, then turn around and set new highs by the end of November, leaving many to wonder why they fell so far in the first place. Charles I. Clough Jr., chief investment strategist at Merrill Lynch & Co., recently took some time to talk about developments in the financial markets, and to share what he sees happening in the year ahead. Q: Based on the market's move over the last couple of months, it seems as if Asia, Russia, Long-Term Capital and Brazil never happened. Are the steps that have been taken to deal with these problems the reason markets seem so much healthier? A: We have thrown a lot of money at a lot of problems, but throwing money at them doesn't necessarily solve them. It is really hard to make the case that foreign events caused the mighty, powerful reserve currency capital market to collapse. It closed because American corporations are spending so much right now on investment they are running big cash deficits. And that led the Federal Reserve Board to throw a tremendous amount of money at the capital markets. It is that liquidity that is helping stocks. Q: When they try to explain the source of the money that is flowing into the market, a lot of folks cite big cash balances in money market funds and at mutual funds. Do you buy that? A: The stock market has seen its capitalization increase by at least $1.5 trillion in the last two months. You can't do that with normal savings. There is something powerful underneath this thing, and I would argue it is the Fed. Q: This all sounds rather ominous. Is the market's recovery really that tenuous? A: We are the biggest bulls in the world. But the real question the market is going to have to deal with is what happens when the economy slows. The Fed has now reflated the equity market bubble. The risk is that next spring they will be looking at an even bigger bubble at a time when the economy will be slowing and profits will still be declining. Q: A lot of people have recently been talking more optimistically about profits, if not in the first half of the year, then later on. You seem to take issue with that view . A: I think the argument is flawed. For the last five quarters, profits have been flat to down in the context of a Goldilocks economy. The basis for profits is fantastically positive, and yet they are weak. I don't know if we will go into a recession or not next year. But I do know we will run that risk, and will go through a period of very, very sluggish growth, a time when investment spending will slow. When that happens, spending, income growth, profit growth and employment will all be weaker. Q: Are the announcements of the Exxon-Mobil merger and Boeing's production cutbacks examples of that? A: They sure are. So was Intel's decision to cut capital spending by 40 percent, which it announced a couple of weeks ago. I think we are going to see more of that. We have had the biggest capital spending boom in history. But after a while, there is too much of it. Q: You have been a much bigger fan of the bond market than of the stock market for at least a year. Is that still the case? A: Yes, it is. The best-kept secret in the world is how well the 30-year Treasury bond has done this year. It has had a return of about 18 percent so far, roughly in line with the Standard & Poor's index and much better than the average stock, which is down. I think by the end of the year it will beat the S&P. That's unheard of, for a bond to beat the stock market in a period of strong economic growth. Q: Is 1999 a year to buy bonds? A: I think bonds will outperform stocks by a country mile next year. We think rates will fall, and could fall substantially, because there is no inflation out there. A year from now, we could see yields on the 30-year bond at 4.25 percent, possibly lower. I am not holding back. Q: Is there more money to be made abroad than at home next year? A: Today, nobody dares look outside the United States. But the theme for 1999 is that money will gravitate toward economies and markets that are running current account surpluses and are not heavily dependent on inflows of foreign capital. That may point you to Asia, where countries like Korea and Thailand are already generating current account surpluses. Others will start doing the same soon. Asia could be the big story in 1999. -------------------------------------------------------------------------------- Home \| Site Index \| Site Search \| Forums \| Archives \| Marketplace Quick News \| Page One Plus \| International \| National/N.Y. \| Business \| Technology \| Science \| Sports \| Weather \| Editorial \| Op-Ed \| Arts \| Automobiles \| Books \| Diversions \| Job Market \| Real Estate \| Travel Help/Feedback \| Classifieds \| Services \| New York Today Copyright 1998 The New York Times Company

To: Harry Landsiedel who wrote (69512)	12/7/1998 7:45:00 AM
From: nihil	Respond to of 186894

RE: Intel capital spending cuts ... not! I think it is just an error. If Intel had cut capital spending, we would all be dodging the thuds of plummeting Semiequips.

To: Harry Landsiedel who wrote (69512)	12/7/1998 12:41:00 PM
From: Paul Engel	Read Replies (2) \| Respond to of 186894

Harry - Re: "Section Charles Clough of ML stated that Intel announced a 40% cut in capital spending in the last couple of weeks. " The only thing I recall is several comments by Intel indicating they intend to REUSE 70% of existing process equipment in existing fabs as they transition to the next smaller process. Andy Bryant, who made these comments, was EMPHASIZING Intel's new focus on COST REDUCTIONS - NOT Expansion reduction. If Clough is anything like his buddy Kurlak, my guess is that these guys are way too far removed from the Semiconductor industry to UNDERSTAND or APPRECIATE details and subtleties. A great example of this was Bozo Kurlak's comment 6 or 8 months ago about a CPU GLUT that was imminent in 1998 due to AMD and Intel converting rapidly from 0.35 micron to 0.25 micron processes. Bozo Kurlak made the asinine and immature statement that output would IMMEDIATELY double. BOZO KURLAK never considered the fact that AMD and Intel and every other CPU maker is ADDING functionality and transistors to CPUs - 3D NOW (AMD) and 128K L2 cache (Intel/Mendocino), Sharpy for AMD - that will tend to INCREASE die sizes to offset the smaller geometries. Those guys in the Tall New York City Skyscrapers can't see beyond the Hudson River let alone to California to see what is REALLY going on ! Intel has declared they are SOLD OUT and Bozo Kurlak predicted a GLUT of CPUs. Remember Bozo Kurlak's comments - a CPU GLUT in 1998 ! Paul {==============================} pathfinder.com Weekend, May 16-17, 1998 Once again, Tom Kurlak's comments slam chip sector The problem: "The majority of the market over the next five or ten years is likely to want simple computers to do simple tasks." By Michael Brush moneydaily.com The sub-$1000 personal computer may be great for consumers. But it has been rough on the companies making components - like chips -- that go into it. Add to the cheap PC's popularity a glut of microprocessors created by increased capacity and slower sales, and it will be hard for chip makers to see much of a gain in sales or profits this year. Their equipment suppliers will suffer, too. That's according to Tom Kurlak, Merrill Lynch's influential chip sector analyst, who shared his view in a conference call with investors Friday. News of Kurlak's comments helped push Intel (NASDAQ: INTC) stock down over $4 to close at about $80 Friday in heavy trading. Shares of Advanced Micro Devices (NYSE: AMD) and National Semiconductor (NYSE: NSM) also traded about 10% lower on heavy volume. Kurlak says the glut will be caused in part by a ramp up in production this year at the major chip makers: Intel; Advanced Micro Devices and International Business Machines (NYSE: IBM), which make the K-6 chip; and National Semiconductor and its Cyrix subdivision. This build-out will increase overall capacity by over 50% to 150 million units by the end of this year. But PC makers will only need about 115 million , according to Merrill Lynch estimates. That's not the only thing that will hurt the chip makers. They are also getting less money for each chip they sell, on average, because the growing market for cheap PCs is forcing them to reduce prices. "The mix continues to shift towards low-end product, and this drives the average selling prices down for the microprocessor producers," Kurlak said on the call. "So it is not a good trend." Another problem for the chip makers is a slowdown in demand for their product. Semiconductor sales in March dipped below sales the month before by about 1%, and were 5% below the same month the year before, says Kurlak. Only eight months ago, the industry was enjoying 20% year-over-year growth. "We think it is pretty unlikely there will be any growth in 1998. And the debate now is whether it will be negative by 5% or 10%," says Kurlak. "With the complications created by a glut developing in the microprocessor market, and a continuing glut in the DRAM market, there is not much chance of improvement in overall industry sales and profits in the second half or early 1999. It's possible sales and profits will be lower in the second half than in the first half." To keep profits growing, chip makers will have to find new markets where they can sell higher-priced processors in large volume. Kurlak says he doesn't see any relief from leveling off in the popularity of cheap PCs among consumers. The market share of low-end PCs has gone from zero to 27% in 12 months, and it could soon reach as high as 50%, he says. "It's not likely to stop here, with this much momentum." Why not? Because from here on out, Internet use will drive sales of new PCs, as opposed to new software apps that need more computing power -- the trend that has driven sales of new PCs in the past. "The Internet is increasingly being used as a communications tool, and the appliance required to get on the Net is relatively simple," says Kurlak. "We don't believe the bulk of the market is going to continue to become more complicated and propeller head-like. The majority of the market over the next five or ten years is likely to want simple computers to do simple tasks." Send your commments to Michael Brush