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Posted 8/9/2004
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The elusive back-to-school PC rush
If computers do indeed fly off the shelves in August, you'll find little proof in recent inventory, orders or chip prices. Plus, a bear's cupboard, bared.
By Bill Fleckenstein
Beginning with a popular theme from the mania, and which folks still tend to cling to, I'd like to spend a minute on the "back-to-school" season, where PCs are rumored to fly off the shelves. I've always been somewhat suspect concerning this thesis because, for many years, it was more theory than fact.
This year, it appears not much is happening. Activity in the motherboard market has been weak, and DRAM prices have been going down pretty steadily almost every day for a month. I doubt we'd be witnessing this if a wave of orders was being placed to build PCs.
Last Wednesday night, we saw lowered guidance from 02Micro (OIIM, news, msgs), a smallish company that derives about two-thirds of its revenues from notebook computers. For what is supposed to be the strong "back-to-school" quarter, 02Micro now expects sequential growth of just 1% to 5% -- not exactly a back-to-school ramp in that rate of change.
Even more interesting was what CEO Sterling Du had to say on the conference call: "Wafer fab utilization from some of the wafer fabs, according to information we have, has continued to go down, and that's unusual for a July-type time frame leading into August. And, he added, You would expect to see wafer fabs actually very bullish for August/September. That's (what we're seeing now) very abnormal from my historic perspective."
Now it's possible that vendors may not be seeing orders because there is currently enough inventory around. On the other hand, it could also be a function of an end-demand problem. We just don't know yet.
But given the inventory situation we saw at virtually every chip company through the reporting season, and given last Tuesday's announcement of weakness from Vishay Intertechnology (VSH, news, msgs), I continue to think that the problems out there are more than just inventory-related. (Vishay Intertechnology is a company that I don't normally talk about, but its comments are interesting, due to its broad line of products that go into nearly everything. For more on their announcement, click here.)
In the den of a dollar bear
Shifting to the dollar, I'd like to answer an e-mail from a reader of my daily column who asked why the dollar is rallying. (Its up a bit more than 3% in the last month.) And would I please reprise my dollar-bearish viewpoint. In brief, it revolves around my belief that:
- The stock market, the economy and the housing market are all on borrowed time.
- They are tied together, and in some sense, are one giant speculation.
- The speculation in stocks and housing has helped the economy, and, as readers know, now that we're in the post-stimulus period, I expect to see weakness at some point.
Why does this matter so much? Easy Al has thrown his weight behind the June-weakness-was-just-a-blip thesis. If it turns out he's wrong, folks will start to question his credibility (which they should have long ago). Once they do, it will be clearer that the interlude we've had in the last 15 months after the initial post-equity-bubble stock-market collapse was just that, an interlude. We will be heading into a period of weakness for which neither the Fed nor the rest of the government has any answers.
Simultaneously, we will have ratcheted inflation up, such that the Fed will be hard-pressed to cut rates -- though I don't believe that cutting rates now would have much of an impact, since all we got out of those 13 rate cuts, two tax cuts, etc., was about 15 months of speculation, notably by using one's house as an ATM.
The market as grand dame of all data
Importantly, while the foreign-exchange market continues to be fixated on junior economic data, it appears not to be fixated on the most important statistic of all -- the stock market. Stock-market weakness will create economic weakness. It's far more bearish and far more of a leading indicator than the monthly jobs data that so preoccupy folks. In any case, I am bearish on the dollar primarily because I am very bearish on the stock market and what that means for the economy and the housing market.
That said, Friday's horrendous jobs data certainly got folks' attention -- and probably will be the start of the loss of credibility at the Fed that I warned of in my "Next Time Down" speech. Further, I believe this raises the odds of a market dislocation, which I discussed in my July 12 column, "Odds of a crash are higher than you think." In any case, I am bearish on the dollar primarily because I am very bearish on the stock market and what that means for the economy and the housing market.
Which one actually will lead the other is hard to say. They're all kind of wrapped together, like two intertwined Mbius strips, if you will. But the bottom line to me is very dollar-bearish. When folks realize that the economy, the stock market and the housing market are all "on their own," and that the Fed has done nothing but make matters worse, I can only imagine the damage that ultimately will be done.
A bear cupboard, bared
My "defensive" position for this scenario: I am short tech stocks, and long foreign currencies, gold, Newmont Mining (NEM, news, msgs) and Pan American Silver (PAAS, news, msgs), of which I am a director. I recently sold all my silver bullion, just because I have so much exposure to these other areas (not to mention plenty of Pan American exposure), and it's the most volatile of all the things that I am long. If I didn't have such large positions in everything else, I would probably stay with my silver position. But you can't always kiss all the pretty girls. On the other hand, I am looking to re-establish my silver bullion position at some point, either on silver price weakness or dollar weakness.
Finally, as a sign of how out of favor gold continues to be, last Wednesday an operator from the Paris Bourse, a company called Euronext, said it's closing France's official gold market until further notice because there aren't enough operators to make it worthwhile. I suspect that, before the gold bull market is over, folks will be opening dealer centers all over the planet.
Bill Fleckenstein is president of Fleckenstein Capital, which manages a hedge fund based in Seattle. He also writes a daily Market Rap column on his Fleckensteincapital.com site. His investment 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. At the time of publication, Bill Fleckenstein was long Newmont Mining, long Newmont Mining calls and long Pan American Silver. The views and opinions expressed in Bill Fleckenstein's columns are his own and not necessarily those of MSN Money.
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