Editor's note: This column, which reflects market activity from the day before, originally appeared June 30 on RealMoney.com. To sign up for RealMoney, where you can read Bill Fleckenstein's commentary every day, please click here for a free trial.
The overnight markets were modestly lower, but that didn't stop us from having a nice preopening ramp job to salute the end of the quarter. Tech was especially hot, as a big dead-fish house raised its opinion of
this morning (more about that below). The early-going frenzy petered out around the time the Chicago Purchasing Management index printed slightly less than expected. However, I don't think that precipitated the slide. I think the complete and total bull of the preopening ramp job couldn't be maintained, and we started to sink.
For Whom the Bonds Forebode:
About midday, we hit our lows, right around unchanged, and then the
bounced back close to the day's highs. But after that fizzled late in the afternoon, we wound up closing nearer to the lows, with the action in
land slightly weaker. Intel finished on the low of the day, up about 20 cents, after having opened 70 cents higher. Otherwise, there was little worth pointing out, besides the suspicious weakness in housing land. If the bond market has peaked, those stocks could have seen their highs. Obviously, that would not bode well for economic action in the second half. In any case, it will be most interesting to see what the rest of the week brings in all these various markets. Tomorrow I'll share some quotes from one of the two stock market technicians that I pay attention to.
Away from stocks, it was quite a mixed picture. The Japanese yen and Canadian dollar were initially very weak but then crawled back all day long to close down fractionally. The euro was up about 0.5%. Gold was slightly firmer, and silver was up 1%. Fixed income saw a bounce as well. How much those markets were influenced by the quarter's end is anyone's guess. Meanwhile, in the canary-in-the-coal-mine department, Japanese government bonds were thumped again last night for 10 basis points, with the yield now up to 85 basis points. Obviously, that's not a giant number, but relative to half that yield on JGBs a couple weeks ago, it's a mighty big change, and one that ought to produce some ramifications. I added modestly to my positions in gold, silver, the euro and the Canadian dollar today.
Poof Goes the Burden of Proof:
Returning to Intel, as I read the "research" from this particular dead fish, a couple of things came to mind. Was he trying to curry votes among portfolio managers who'd like to see that much-loved stock ramped up at the end of the quarter? His thesis for believing that Intel will make the numbers and not lower them for the third quarter is the categorical statement that "overall chip demand is decelerating," while demand for Intel's products is "beginning to accelerate."
Once again, it's a case of arm-waving by the dead-fish community, because this report is completely lacking in evidence to support his case. It contained no corroborating data in the form of what PC vendors have been saying, or what motherboard makers have been saying, or what components manufacturers closely aligned with PC makers have observed, or what the corporate buyers of IT have been saying (more about that below). The omission of such supporting data is, of course, no oversight, since it doesn't exist in the first place.
Semiconductor Index (SOX)
Amex Gold Bugs Index
10-year Treasury Bond
On the contrary, as I have pointed out many times, PC vendors such as
and the PC companies themselves have said they see no signs of "acceleration." In fact, knowledgeable industry observers will tell you that anything
acceleration is taking place. Intel has only "succeeded" in the second quarter because it has a new product and it's been able to, in my opinion, stuff the channel with its Centrino chip. Ex that, nothing is happening. Further, Intel faces big trouble in Q3, not just because of weak demand but also due to competitive inroads and pricing pressure from
Advanced Micro Devices
, via its Athlon and Opteron chips.
Itty-Bitty IT = Intel Uphill:
In any case, if dead fish can dispense with reality when it gets in the way of a tech fantasy, reality is the singular view from the knowledgeable technology insider whose emails I have shared over the course of the year. Today I would like to share his final commentary from the vantage point of corporate America, as chief architect of a major Fortune 100 company that consumes massive amounts of IT, as he heads off shortly for an IT position with the government. (He also sent this to Herb Greenberg, who covered it in his column on
.) Here are his thoughts:
Just wanted to give you a quick summer technology update. As I figured, budgets are not expanding in any way to support the idea of a second-half technology spending rebound. This comes not just from me but from many people I speak to in the industry. It's just flatness and stabilization in terms of money spent. Unit volume is up in terms of hardware purchases, but that is primarily coming from the fact that, again, you can get more for your money, not because of higher demand. We are able to replace hardware without any increase in our budget. Again, so much for the replacement cycle; it has not existed for years now, but people keep harping about it on TV. Software spending, as I had explained previously to you, does not ratchet up in the summer, and it is not any different this year. We also have gotten the expected uptick in project cancellations as business units refuse to fund further technology efforts for the summer. Expected this, and we have had to downsize staff accordingly. We now have moved to almost 80% offshore/20% onshore at XYZ Company to cut costs. Yet somehow, monetary stimulus will fix that trend. Beats me. And monetary stimulus is generally considered a joke in terms of fixing overcapacity. We had a joke last year that we will begin taking out 0% loans at our company to buy equipment. It's not a joke anymore; we have received several offers of this idea from sales executives. On a lighter note, I have decided to move from my current position and take the plunge to working in the government IT sector. For me, it's a step up in my career, and also gives me a chance to get away from what I see as a stagnating corporate tech spending situation, to move into a government tech spending picture that is much brighter. I am tired of the constant cancellation of projects due to lack of funds, the outsourcing trend to offshore resources, due to cost, and the overcapacity that plagues the corporate side. I also think that many in IT sense the outsourcing trend that is under way and are reacting accordingly. I have been able to recruit several others I know from previous jobs to work with me in a contractor role for the government. Anyway, I will try to keep you updated with what I hear from sources in the future. Suffice to say, there appears little hope in my eyes or the eyes of many others in the IT industry that a second-half tech rebound will be coming (save for the tech vendor CEOs, of course). It's still sad to see many who believe otherwise and who would believe that the hypergrowth rates of the past might return, but the corporate spending budgets just are not there to support the idea.
So, an unvarnished view from the frontlines of IT spending -- one that Fred Hickey and I have been espousing. Folks should compare this with what the dead-fish community has been saying, and decide where they want to cast their vote. Over the course of the next two quarters, we'll find out which view is more accurate.
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 Intel, long Intel 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