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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: OLDTRADER who wrote (109456)	3/14/1999 4:01:00 PM
From: William F. Wager, Jr.	Respond to of 176387

Food for thought..."a crowded trade".............-------------> Changes in the job function of securities analysts over the years have disabled another normally self-correcting mechanism. As commission rates have contracted, investment-banking revenue has become far more important to brokerage firms, and analysts' compensation packages have been altered accordingly. Analysts now are actively engaged in trying to bring investment-banking business to their firms. Recommending the sale of an overpriced stock is not the best way to gain the favor of chief executives. Analytical independence has been compromised as a result. Indeed, analysts generally have been more like cheerleaders, constantly "reiterating their buy recommendations" at ever higher prices to endear themselves to options-laden managements. In post-earnings conference calls, many questions are cloyingly prefaced by phrases like "Great quarter, John." Corporate officers, in concert with their investment bankers and accountants, have encouraged acceptance of these large stocks' high valuations. With the blessing of the analytical community, they have persuaded investors to focus on "operating earnings" rather than "reported earnings," which are frequently encumbered by writeoffs and special charges. According to estimates by Goldman Sachs, reported earnings for the S&P 500 showed no growth at all from 1996-1998. Only by adding back unusual charges, which rose 170% during this period, was there any growth in "operating earnings." The media have also played an important part in encouraging acceptance of high valuations. Money managers, analysts and corporate executives regularly appear on television to expound the virtues of their favorite stocks, but valuations are rarely discussed, and commentators rarely challenge their interviewees on this subject. This bias of the media is readily evident by the recent brouhaha at CNBC when James Cramer indicated he thought a stock overvalued and considered shorting it. The company involved threatened a lawsuit and Cramer, a frequent guest, was temporarily blocked from further appearances. Apparently, it is perfectly acceptable for dozens of portfolio managers and corporate officers to push their stocks, but contrary viewpoints seem less welcome. The insensitivity to price has even spread to the public sector. When Alan Greenspan expressed his concern about "irrational exuberance" at 6300 on the Dow, he received so much criticism that even though prices have risen another 50% from those levels, he now speaks in highly subjective tones as to whether the market may be overvalued. While it may have been prudent for the Fed to help orchestrate the bailout of Long-Term Capital Management, which had leveraged itself 100 times, the action served to intensify the very speculative fervor that had apparently worried the Fed earlier. Investors, convinced that the Fed would support the market at all costs, developed a casino mentality that pushed Nasdaq up 70% from its October lows. Online trading exploded and Internet stocks soared to unimaginable levels without any cautionary comment or act of restraint from the Fed. The dominance of the high-cap stocks has persisted for so long that skeptics have capitulated or been run over. Value managers have watched their assets drain away to large-cap managers. Even short sellers have largely given up. The short interest in Dell was 116 million shares in October when the stock sold at $25. Now, with the stock at $43 and with indications of a marked slowdown in growth, the short position is only 48 million. Everyone is on the same side of the boat. The complacent response has been: "One could have made much the same argument last year, but the stocks are now much higher. What is going to change?" Such passionately held beliefs die hard, but every previous crowded trade has ultimately ended unhappily, usually for reasons that were unanticipated. Crowded trades begin to unwind when some participants become concerned, break ranks and sell their positions, fearing that they must act before others do. The subsequent underperformance then challenges the confidence of others who have held the same positions only because the strategy was working. As more investors try to leave at the same time, things deteriorate quickly. Prices drop sharply because, in their hearts, everyone knows the positions to be overvalued. The collapse of Japanese long-bond prices as rates moved up sharply is a recent example. The daisy chain is only as strong as its weakest link. There are some challenges ahead for the new Nifty Fifty. The Securities and Exchange Commission finally seems to be getting serious about stopping accounting practices that artificially inflate or manage earnings. As these practices are eliminated, earnings surprises will become more numerous and the illusion of consistency that has led investors to pay big premiums for predictability will disappear. Additionally, the rise in long-term interest rates we have just experienced makes high multiples more vulnerable. Trade conflicts among nations are becoming more numerous, and these have triggered financial crises in the past. It would not be shocking to see the big-cap names trade substantially lower now that their invincibility has been so broadly accepted. After all, this is what happens in all crowded trades. DAVID ROCKER is a general partner of the hedge fund Rocker Partners L.P. ********************************************************************** Sounds what like happened to us on the way down from 110 (pre-split). If he is right and "real earnings" begin to count, Dell should be well-positioned going forward. --Bill

To: OLDTRADER who wrote (109456)	3/14/1999 8:01:00 PM
From: kemble s. matter	Read Replies (1) \| Respond to of 176387

William, Hi!! RE: RE:Kimball-Thanks-I sure try to just tell it as I see it.Diplomacy is for those sometimes who have agendas-Yeah I have an agenda -to tell others how to make a lot of money-Yeah it helps support my own position-thats God's way-help others and you help yourself in many ways.Have a great day-your friend.wbm Agenda...nice word...I think your agenda includes buying more DELL....the contracts are coming in...the high end business is pulling them over... CAN'T AFFORD NOT TO DO BUSINESS WITH DELL... Best, Kemble