[written April 25, 2001]
I've stuck with my thoughts from a previous Soapbox for a while now, but I wanted to talk about my opinion on where the market is going. My basic view hasn't changed, and I haven't been given much reason to change it since then, either.
Since I wrote that Soapbox, things have gotten much worse for tech stocks. I am completely disillusioned towards company management now. I am not overly pessimistic about the economy to the degree that I'd say we're all going to be standing in bread lines or any of that shit. But if I mention the topic to, say, my dad, that's how the view is treated. It's this sort of disbelief that I trade against. Not that it's a reliable indicator, but it's hard to envision the unimaginable until it happens, and then it seems so logical.
So here's the deal. Every day I watch the stock market, and every day I see companies release warnings of earnings estimates, or the earnings themselves. And what I see is the management pulling all sorts of stunts to pull their stocks and finances out of nosedives. Keep in mind I'm only talking about tech for now.
Just today, Sun announced that it would halt operations for a week (!!) in order to cut costs and not lay people off. I mean, this is unreal. I am not sure exactly how it will work out for individuals, but we're probably talking about one week off for all employees and management, unpaid leave or vacation. (note: fuckedcompany.com has posted the e-mail sent to employees) Intel was exposed as basically paying off future employees with bonuses to get them to void their contract and go away. Criminal! PurchasePro warned about earnings the day before it was to release earnings, or something like that. I didn't even know companies could/would do this. I thought they had a quiet period before earnings dates, where they weren't allowed to release new info! So much for that.
And I've seen CNBC getting all bullish when companies say they predict a recovery in the second half of 2001. What CNBC won't talk about is how starkly this contrasts with companies saying they have NO visibility in the near future yet somehow have grand notions of stellar performances in 2002. Let us not forget that most of these companies were saying that the recovery would be in the first half of 2001, until the first half came around. Now they push it back, cut capital expenditures, admit they're getting more cancellations than orders, and somehow paint a rosy picture for the future. This is all BULLSHIT.
If you watch and read things like Louis Rukeyser, CNBC, and Motley Fool, they all so casually and nonchalantly say that we just experienced a bubble. Never mind the fact that EVERY SINGLE DAY, they were coming out and saying that it wasn't a bubble, and that it was safe to invest a little bit at a time. (okay, whatever) You used to see articles all over financial news about "is this a bubble?" and now people talk about it unanimously as a bubble that has already passed, and now the bottom is in place and everything is rosy again. It is as if nothing happened, and they were all cash all the way down.
Plus the companies are slow to cut their estimates or be the slightest bit conservative. We traders continue to see the same companies warn of estimates being cut. It is so normal now. The brutality of the news has been lost to a degree -- these companies are losing business! What hit the B2C market first is now hitting the B2B business. In terms of the bear market, this at least means we're getting to the meat of the selling: when businesses stop doing as much business with other businesses.
The bottom line is that these companies are full of crooks and idiots who evidently had no idea the bottom had fallen out from under them, and all the sudden their glowing earnings reports went sour. What's the point of full disclosure when the companies don't have a clue? When managements all across the country are doing things like illegally trading stock, firing people with little to no advance warning or severence pay, or not paying their bills, or being convicted of pedophilia (yes, this has all happened), how can you sit there and trust anything they say?
Companies need to stop releasing contradictory outlooks for the future.
Meanwhile the stocks have fallen a shitload and are still overvalued, and they still run 20-30% in a day to go from slightly overvalued to piggishly overvalued. The E in the P/E ratio is dropping fast, and I'm sure in some cases, stocks are more overvalued than they were when they were higher, since they're bleeding money so fast.
Tech looked bad when the NASDAQ was at 1600, but consider that it was lower than that not too long ago, and that we've just experienced a stock market bubble. Now, perhaps this time is different, but bubbles popping give a crushing shock to the system. You're talking about a massive movement of money in and out of tech, billions of floated shares on the market weighing stocks down, and virtually no support to prices representing companies with no positive earnings or cash inflows. Partnerships and contracts fail because people don't have the money, companies go out of business, or the business demand isn't enough to justify it anymore. All this brings stocks just as wildly down as they went wildly up. I do not think pain has been experienced in the meat of tech. I could be wrong, yes, but historically the percentages would be for the bubble overreacting on the downside as well.
And CNBC has clamored about this long long bear market, but let's be honest. The bear market is almost entirely contained in tech. The Dow is still where it was the last time I talked about it, and still where it was when the NASDAQ was at its highs. The US dollar is still near like 15-year highs. And this is despite the energy crisis in California and the oil scares that are said to drive gas up to $3/gallon this summer. Other currencies are weak, and people have been waiting for the elusive Yen and Argentinian pesos to devaluate.
On the other hand, the Fed has been out pumping the stock market with liquidity and interest rate cuts. Traders remark that they've never seen the Fed this active. Remarks one source, "There was another dramatic increase in M3. If last week's rate of increase were annualized, the money supply would grow at 30%." I am of the group that thinks the Fed is fighting the futile effort that all countries' banks have historically undertaken: cutting rates in an attempt to combat the bursting of a bubble. But it doesn't work. Stocks keep falling no matter how many cuts one tries. I think as of tonight, we are below the index levels of Greenspan's surprise 50 basis point cut. Scary.
I still think the Dow will fail. The stock market is being infused with money and it won't go up, and there is no way the market can absorb the shock of companies being created and destroyed overnight, along with their stocks, an effect which touches upon employment levels, real estate, and management psychology. I am baffled as to why it is taking the Dow so long to break (even though it had a quick dip to 9100), but I think it is inevitable.
Okay, so positive signs for the economy and tech. The semiconductors have taken a lot of beating, with constant estimate reductions and cutbacks, yet the SOX is still sitting at the same levels. Some semi's have been trying to base and rally, like AMD, while INTC has been drifting lower.
CNBC has pumped the semi's up bigtime, at one point telling everyone to buy at the top of a rally, and then having it fall huge the next two weeks. This is CNBC at its finest. Buy at the top. But the reality is that I think semi's are going to fail. First of all, there is only one real thing that will increase revenues, and that is a killer app that everyone has to have. This used to be Windows 3.x, or Windows 9x. Now computers are fast enough to run most everything, so people are not inclined to buy new computers like they used to. Much has been written about this.
CNBC says that semi's will lead the market back. But I feel this is logically wrong. People will go out and buy computers if there is some cool software to get, as said above. Software should lead us. Microsoft is the main choice. But if you look at Microsoft's roadmap, nothing they're planning to release really needs an upgrade. Windows XP is not going to restart the software boom. I think a possible catalyst would be some sort of 3D Internet interface. Geez, have I mentioned that before?
Some say stuff like Doom 3 from id Software will require upgrades. That is a possibility, but it will need other software along with it to make the move compelling enough.
So software needs to get going first. Then come the computer sales, which affects semi stocks. Considering how prices on CPUs and RAM are still dropping considerably, a turnaround isn't happening yet.
Internet architecture has paused too, and a faster technology will need to be developed and then deployed before we can take advantage of it both as consumers and as investors. Nothing brewing here for a bit.
These stocks will bottom when people stop saying things like "should I buy yet?" People are STILL optimistic about tech, as bull sentiment is still high and margin debt is too. (although a lot of that is short selling I'm sure)
I think oil prices could defuse the broader market as well, and the Dow could finally correct as it looks like it should. Estimates will have to be cut until companies are running their businesses efficiently again and we can build a slow, torturous base from it. I do not look forward to trading the basing phase of the market.
So I am still bearish. Could I be wrong? Most definitely. But I don't have faith in this month's bounce, and think we will go lower. At best, stocks trade in a range and no money is to be made for investors for a while. I hope the former, because at least there'd be movement for me to trade. :)
I go out on a limb voicing my prediction of course. I have not seen what a full bear market looks like, although I just saw the tail end of a bull market. So I have to go on what I've read and what seems logical. With age I will become more experienced with watching market cycles. But I've been right so far, and I'll stay with it. Don't assume the worst is over!
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