Market Rap
Micron Sees Improved PC Demand; Dell Doesn't
By Bill Fleckenstein
Special to RealMoney.com
06/11/2003 05:24 PM EDT
URL: http://www.thestreet.com/p/rmoney/marketrap/10093006.html
| Index | Close | Change |
| Dow | 9183.22 | +128.33 |
| S&P 500 | 997.48 | +5.70 |
| Nasdaq Composite | 1646.02 | +18.35 |
| Nasdaq 100 | 1228.24 | +15.25 |
| Russell 2000 | 455.50 | +4.54 |
| Semiconductor Index (SOX) | 380.81 | -2.28 |
| Bank Index | 881.36 | +15.82 |
| Amex Gold Bugs Index | 145.74 | +2.05 |
| Dow Transports | 2483.17 | +24.74 |
| Dow Utilities | 248.80 | +1.85 |
| NYSE advance-decline | +1,467 | +114 |
| Nikkei 225 | 8890.30 | +101.21 |
| 10-year Treasury Bond | 3.19% | -0.006 |
Texas Instruments
(TXN:NYSE - news - commentary)
dropped a bomb last night, but the world markets failed to notice (more about Texas Instruments below). Likewise, our stock-index futures were higher for a good part of the evening, though they sagged a bit as the casino prepared to open for business. No sooner did the market open, however, than it scooted to the upside, as bad news was ignored and prior losses were erased.
Dear-Diary Defense: That said, bad news continues to hound Freddie Mac
(FRE:NYSE - news - commentary)
, now the subject of a formal investigation by the SEC and a criminal probe by the U.S. attorney. The company went out of its way to say this was related to the diaries of COO David Glenn. I don't see how anyone can know if that's the sole cause, but I guess the fact that initially, Freddie was down only 50 cents on the back of the news emboldened revelers. It was certainly heartening to housing revelers, as those stocks were all up 3% to 4% in the early going. After the early-morning surge, the market spent the next few hours flopping and chopping in kind of a narrow range. Then, with a couple hours to go, we mounted a mighty charge to the upside, the results of which you see in the box scores. Housing stocks were the clear-cut winner today, as they continued their early advance by exploding to the tune of roughly 6% to 8%, with many making new highs. Financials, too, had a pretty good day, as did biotech. Today, the SOX played skunk at the speculation party, but I guess they can try to rectify that tomorrow. Away from stocks, there was a good deal of action. Fixed income was slightly lower, after having been a bit firmer. The dollar was hit pretty hard vs. the euro, and unchanged vs. the yen. Gold popped about 1%, as did silver. Oil continued its deflation-inspired collapse, up 63 cents to $32.36.
Not-So-High Wireless Act: Returning to Texas Instruments, last night the company lowered its guidance, which shouldn't have been a shock to anyone who's been paying attention to the state of the wireless sector. There was a huge inventory build occurring in Asia, and then SARS hit. The bullish interpretation is that now that SARS is behind us (an interpretation that I do not share), there will be a rebound. But I think the inventory build predated SARS, and it will continue to be a problem. Texas Instruments cut its earnings forecast from 8 cents, plus or minus a few cents, to 6 cents, plus or minus a few cents. Now if that doesn't show how silly the whole process is -- as if 8 cents a quarter could support a $20 stock price, which is where it was yesterday. The other point I find interesting is that until last night, Texas Instruments had been so eager to reiterate its prior positive guidance multiple times. This is a pattern seen with lots of tech companies. Why any of these companies still have any credibility, I don't understand. Of course, I don't understand why Wall Street itself has much credibility, or Greenspan has any credibility, but they all still do (for now).
128-Megabyte Bombast: Continuing on in chip land, yesterday there was a rather humorous development by way of Micron Technology
(MU:NYSE - news - commentary)
, the flying pig. But before going into the particulars, I would just like to explain why Micron has earned its "wings." During the mania, folks were all too eager to believe whatever stories were spun by the company's investor relations spokesperson, Kipp Bedard. My comment back then was that if Micron could actually do what it snookered folks into believing, then pigs could indeed fly. But back to the present, and for those of you who don't know, Micron has lost money in 18 of the last 23 quarters. That's how good the company is at anticipating changes in business conditions. Micron is perennially bullish about its own abilities and about PC demand, and it is perennially wrong. Nevertheless, at a technology conference yesterday, the aforementioned Mr. Bedard said something to the effect that demand for personal computers may be tracking better than the company had previously thought. According to a Dow Jonesstory, the company expects PC shipments to be down in midsingle, rather than high-single digits.
Wide-Eyed Acolyte-Weights: In fact, if Mr. Bedard had paid any attention to what Circuit City
(CC:NYSE - news - commentary)
, Ingram Micro
(IM:NYSE - news - commentary)
, CDW Computer Centers
(CDWC:Nasdaq - news - commentary)
, Tech Data
(TECD:Nasdaq - news - commentary)
, or Dell
(DELL:Nasdaq - news - commentary)
(you know, the people who actually sell PCs) had said, he would know that this is pure nonsense. But of course, that didn't not stop him from passing along his views, nor did it stop idiots from believing him. Here is a company that can't figure out its own business well enough to make any money, and now it's presuming to forecast an end market that's growing to a degree of precision -- i.e., a couple of percentage points -- which folks in the end market can't even seem to get right. The net of it is that now Micron is going to make more parts this quarter. What's particularly hilarious about that is, lately, when they've made more parts, they've wound up losing more money. Last quarter is kind of insightful. Micron had revenues of about $785 million, and its cost of goods sold, just for reference, was about $1 billion. Micron lost about $619 million on that $1 billion before interest costs. So, that should give you some idea of what kind of a basket case this company is. As I was gathering these facts this morning, none other than Kevin Rollins, the COO of Dell, reiterated the point that I am making when he said his company sees no pickup in demand for technology. I bring all this up to underscore just how speculative the environment is, and to show just how little thought goes into the way supposed professionals manage other people's money.
Presuming Big Blue's Blue Skies: And, a slightly different example will show how little thought goes into dead-fish recommendations. This morning, one of them from Merrill Lynch upped his opinion of IBM
(IBM:NYSE - news - commentary)
. Referring to an SEC investigation of IBM's revenue-recognition practices, he said he'd "be surprised if the findings have any significant negative impact on the shares." The same dead fish, I am told, recommended that since many mutual funds were underperforming, they would have to buy tech to catch up, and suggested the shares of certain dogs and cats. (This, like the above, is second-hand, as I did not see the report.) For this dead snapper to be correct in his analysis that the SEC findings would have little negative impact, he would have to basically suppose that there was no "there" there. How he can make this assumption, given the potential for problems, just shows the lack of any serious thought on his part. And, based on other research recommendations I have seen from him, this is not an isolated example. The attitude on Wall Street continues to be, let's get this behind us, rather than let's get to the bottom of this.
Mulch for the Income Statement: I also think the public is back speculating. A contact of mine at a rather large retail shop says that volumes this month are up sizably over last month, which were up sizably over the month before. What makes the bullishness even more incomprehensible is the fact that overcapacity/poor demand plagues businesses in general, not just those in technology. This morning, Bloomberg passed a headline that read: "Deere Sells Low-Cost Tractors in Home Depot as Farm Sales Sag." The story said, "With demand for tractors at a five-year slump, Deere is trying to lure customers..." by selling its stuff at Home Depots. Meanwhile, as we discussed yesterday, the U.S. government is basically broke. State and local municipalities are floundering in the red and laying people off. Other than wild speculation in housing, there is not much to point to in terms of economic strength. In fact, all those folks who believe that the previous stimulative effects were working are now counting on another Fed rate cut at the end of the month to bail them out. But they never explain why the 13th cut should work when the previous 12 have done nothing, or the previous tax package did nothing. Things are a mess, and they're not going to get any better because Al cuts rates again.
Bulls in Extreme, Bears in Exile: The fact of the matter is that the stock market rally is just a bear market rally, like all the others have been, grounded on nothing more than hype and hope. In that same vein, sentiment has swung a long way. Today, Investors Intelligence reported that bulls are up to 58.7% and that bears are down to 16.3% -- the lowest reading in 16 years. Before this rally started in February and March, when I was constructive about the prospects for a rally, I said to friends of mine that I thought before it was all through, the bulls would get to 60% and the bears would be in the teens. Well, I'll take today's statistics, declare victory, and move on. Sentiment is about as lopsided as it gets. Folks who are partying on the long side better have a plan to get out early, because when everyone finally decides they need to hit the exits sometime later this year, it's going to get mighty crowded. That brings me to a quote that I have shared in the past and thought would be appropriate to reprise today: "It is apparent that the public preference for stocks is not only as marked as ever, but also, the will to speculate is still a speculative factor not to be overlooked. The prompt return of huge speculation and the liberal manner in which current earnings are again being discounted indicates that it will be difficult to quench the fires of stock market speculation for long." Well, maybe not that long. This quote came from "The Trader" column in Barron's, published on March 24, 1930. The high of that bear market rally was less than a month later, on April 17, from which the stock market plunged for the next 18 months to its ultimate lows. So, the denial trade, while bigger and more pervasive than ever, is not unique to the 21st century. Finally, a talking-head alert: I will be on "Wall Street Week with Fortune (magazine)" this coming Friday at 8:30 p.m. Eastern time, on PBS. (Local times may vary.)
William Fleckenstein is the president of Fleckenstein Capital, which manages a hedge fund based in Seattle. Outside contributing columnists for TheStreet.com and RealMoney, including Mr. Fleckenstein, may, from time to time, write about securities in which they have a position. In such cases, appropriate disclosure is made. At time of publication, Fleckenstein Capital was short IBM, long IBM puts, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy, sell or hold any security. The views and opinions expressed in Mr. Fleckenstein's columns are his own and not necessarily those of TheStreet.com. While Mr. Fleckenstein cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to bfleckenstein@realmoney.com.
