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Zeev, you think we go to 1820 now instead of later?
Dan, you still like GPXM? Trying to find a bottom.
Zeev, you think Friay will be up since we are already a bit over resistance on the compq?
Zeev, is UTSI a one-two day trade or a bottom or the box play.
Don't you think it will sell off for tax reasons during your swoon. Where do you think it is going and what are your stops?
Zeev, noticed you bought UTSI, aren't you concerned about a big selloff in it for tax reasons. Was that just a one or two day trade or a bottom of the box play? Where do you think it goes and what are your stops.
Bearmove, are you in MVL?, where do you think it goes?
Safehaven Report
Issue #364 8/6/2004
How gold investments boost your purchasing power!
Here's some chilling news for all Americans who don't own gold: The
IRS just announced that the real income of Americans -- income
minus
inflation -- plunged 9.2% during the past two years -- the
first such
drop since WWII.
That means Americans lost a ton of purchasing power just at the wrong
time ... just when gas prices soared over 60% ... when the stock
market lost half its value ... and when inflation rocketed anew.
But those who have been following our recommendations to own gold and
related investments the past few years are experiencing a relative
gain of purchasing power or real income. Consider these facts:
In 2000, the nationwide average price for a gallon of gasoline was
about $1.25 per gallon, while gold was trading around $250 per ounce.
That means, back then, you could buy about 200 gallons of gas with
that $250.
In contrast, now the average price of a gallon of gas is close to
$2.00 per gallon. That means it takes approximately $400 to buy that
same 200 gallons of gas. But since gold is trading near $400 an
ounce, you can still cash in that same ounce of gold to buy your 200
gallons of gas! And with your gold shares, you could buy much, much
more.
Looking ahead, I agree 100% with Larry's views, expressed in this
column in recent years, that gold is in a bull market, giving you the
opportunity to continue to protect yourself against inflation, boost
your purchasing power, and make substantial profits.
Portfolio Update
Goldcorp (GG): This is also one of my favorite mining companies
because it never hedges its gold production. That means it cashes in
on gold's entire price advance without leaving profits on the table.
But it gets even better: The company says it has stockpiled 32% of
its gold holdings for sale at higher prices later on. Now that's a
bullish outlook from experts in the know who expect higher gold
prices! Hold this pure gold mining play.
Newmont Mining (NEM): This blue chip mining company is a must hold in
my view.
It has not only gone straight up since its earnings announcement on
July 28, but President Pierre Lassonde recently told analysts that
Newmont is sitting on big oil reserves, too -- an estimated 544
million barrels on Newmont's property in the sands of Alberta in
Canada. Lassonde says Newmont will invest in more exploratory
drilling for the "black gold" of Alberta.
With crude oil at another record high of $44 per barrel, I expect oil
profits to boost Newmont's bottom line in the future! Plus, my own
seasonal analysis dovetails nicely with Larry's analysis: Mining
shares are now in one of the two low-point zones for the year and
should move up nicely from here. Hold.
Kinross Gold (KGC): Although Kinross just announced improved earnings
($6.6 million) and cash flow ($25.7 million), the real kicker is that
it says its earnings would have been $12.1 million last quarter if it
hadn't hedged gold. But the good news is that it also says it's now
completely unhedged and ready to cash in on gold's future price
advances! Hold tight.
Agnico Eagle Mining (AEM): This stock is basing for a big move up,
and it's paid a cash dividend for 24 consecutive years. It's
completely unhedged, too. AEM's owns Canada's largest gold deposit at
its LaRonde Mine in Quebec. Hold.
Cambior (CBJ): This virtual penny stock sports a chart pattern as
powerful as that of mining giant Newmont ... yet at $2.95 per share,
it's only just begun its long-term advance! Plus, Cambior has 3.8
million ounces of proven reserves. Hold.
AngloGold (AU): This underperformer has reached support at $28 a
share. So I don't expect it to underperform any longer. The weakening
South African rand should give it the kick start it needs. Hold.
USGI World Precious Minerals Fund (UNPWX): Hold.
http://smcurl.com/kq8Pr (Ike's note: This is a password site, and may
not work)
Issue #364 8/6/2004
Tsakos Energy: Grab 39% Gains NOW!
Last month, we felt it was not yet the time to take profits on Tsakos
Energy Navigation (TNP). Now it is. On the Monday after we
recommended it, it closed at $24.80, and the last we checked, it's
trading at $34.55, up 39%. The actual price you get may differ for
better or for worse. But if you act promptly, you should have a very
nice profit indeed.
Why our change of heart? We still like the company -- nothing has
changed in that regard. However, right now, many hedge funds are
leveraged to the hilt, and we have good reason to believe that some
of them may be holding this company, too. When they head for the
exits along with other investors, they could drive its price down.
Indeed, during the past 11 years, the number of hedge funds operating
in the U.S. has soared 1500%, from 500 to an estimated 8,000. Hedge
funds are now responsible for 25% of the NYSE's total trading volume,
and a large portion of each day's program trading -- the
computerized
execution of large baskets of stocks. And for the first time in
history, program trading now makes up more than half of NYSE volume.
That means hedge funds are an important force in today's trading
environment.
As stocks moved mostly sideways this year, many fund managers grew
impatient with the stock market's low returns. So, they used a high-
leverage strategy to load up their positions enough to amplify their
profits. It worked! Hedge funds made as much as 6% in June, while the
S&P fell 1%. But now the market has fallen to new lows for the year,
and these fund managers are getting nervous. Here's what I recommend:
First, call your broker and sell all your shares of Tsakos at the
market.
Second, if you haven't done so already, buy 200 shares of Rydex
Arktos (RYAIX). This fund is a great way for you to profit when tech
stocks decline because it rises in value when the tech-heavy Nasdaq
100 declines.
Third, add to your LEAPS put option position. You currently own the
S&P 500 Reduced Value LEAPS put options with a strike price of 100
expiring December 2004 (LSZ XT). I recommend you add 3 S&P 500
Reduced Value LEAPS put options with a strike price of 105 expiring
in December 2005, symbol LSY XA at the market. At press time, they
were trading at $6.30 per contract. That's about $630 per option.
As always, however, invest strictly the funds you can afford to risk.
Portfolio Review
Rydex Ursa (RYURX): This fund works much like Rydex Arktos, but it's
designed to rise in price when the S&P 500 declines. If you don't
already own it, buy 400 shares now at the market.
Wal-Mart LEAPS put options with a strike price of $55 expiring
January 2005 (WMT MK): You're in the money now that Wal-Mart stock
has fallen below your strike price of $55. I expect these options to
begin to move almost tick for tick with Wal-Mart stock. Hold.
Rydex Juno (RYJUX) is designed to increase in value as long-term
interest rates rise. Hold.
Plum Creek Timber (PCL): Timber makes a good portfolio diversifier
because it is not correlated with the movement of the equity markets.
Plus, you're getting a 4.5% dividend yield while you wait. Hold.
Don't forget to carefully plan how these investments fit with your
own investment goals. To help you determine how to allocate your
dollars, we recommend you take our risk tolerance test. This will
help you determine how these investments might fit into your overall
portfolio.
If you are still unsure after you take the test, we suggest 75% of
your money in the Mr. Conservative portfolio (including gold
recommendations) and 25% in the Mr. Speculator portfolio.
Within the Mr. Speculator portfolio, we recommend allocating
approximately three-fourths of your money equally among the Rydex
funds, with the balance divided evenly among the other investments.
Ride Interest Rates and Inflation Higher With This Portfolio Mix
With the energy price explosion helping drive inflation and interest
rates higher, I've been recommending you hold 24% of your
conservative portfolio in gold-related investments, and 10% in
natural resource funds and energy stocks.
Long term, I've made the case these investments should protect your
wealth from inflation's ravenous appetite and soaring gas prices. And
sure enough, at over $44 per barrel, crude oil just reached yet
another record high.
Meanwhile, with interest rates moving up, the short-term Treasury
bills I've recommended will help you boost your yield.
It is important to keep your maturities very short term -- 3-month
Treasury bills or equivalent money market funds only. With the
Federal Reserve Board set to raise rates as many as three more times
this year, you'll want your T-bills to mature frequently so you can
rush out and lock in those new, higher rates when they become
available.
I know it's tempting to grab that 5.37% long bond yield, but it's not
time yet to lock in long-term rates. As rates rise, your principal
investment in long-term bonds falls in value, and you can lose money
if you sell before maturity. But in 3-month Treasury bills or
equivalent, you can wait the short time for the investment to mature
and roll it over promptly to earn the better yields as they become
available.
Portfolio Review
Treasury bills or equivalent money market funds (51%). This
represents over half of your conservative portfolio, which I've
designed to protect you from falling stock prices, inflation, and
rising interest rates. Each time your Treasury bills mature,
immediately reinvest the proceeds. Or, if you're in a Treasury-only
money market fund, just hold -- its yield should go up
automatically
as rates rise.
Buy your T-bills directly from the Treasury Department (Treasury
Direct, 800-722-2678) or through a Treasury-only money fund such as:
American Century Capital Preservation Fund (CPFXX; 800-345-2021)
Dreyfus 100% U.S. Treasury Fund (DUSXX; 800-645-6561)
Fidelity Spartan U.S. Treasury Fund (FDLXX; 800-544-8888)
USGI U.S. Treasury Securities Cash Fund (USTXX; 800-873-8637)
Vanguard Treasury MMF (VMPXX; 800-662-7447)
Prudent Global Income Fund (PSAFX), representing 5% of your
portfolio. Overseas investors are temporarily pushing up the dollar
while they fish for higher yielding investments in the U.S. now that
the Fed is raising rates. But the dollar rally is temporary. Our
nation's enormous trillion-dollar twin budget and current account
deficits will continue to weigh down on the dollar in the future.
Hold.
3-month Australian CD (10%): If you followed my recommendation to buy
this Australian CD last month, you're earning a 4.50% yield.
Meanwhile, I expect any Australian dollar weakness to be temporary.
Hold. To buy Australian-dollar CDs, contact Everbank at 800-926-4922
or www.everbank.com. Enerplus (ERF), representing 5% of this
portfolio. Hold this excellent oil and gas royalty trust while energy
prices soar! Enerplus is up, too -- now at a 3-month high. If you
don't own it yet, buy on any dips to $28 or lower.
U.S. Global Natural Resources Fund (PSPFX), representing 5% of this
portfolio. With crude oil at yet another all-time high, China
importing 47% more oil in June than it did last year, and the Middle
East a powder keg waiting to explode into chaos, I expect PSPFX to
take off. Hold. If not yet on board, buy at the market.
Gold-related investments: Keep your allocation at 24% of your
portfolio. See page 6.
Two massive, sweeping trends in the making:
Software slump signals deeper tech woes
Powerful forces drive energy sector higher
I started watching the stock market nearly four decades ago, and in
all these years I have never before seen such large, all-encompassing
sectors follow such divergent paths. Right now ...
* The broad technology sector -- the massive complex of computer-
and
communication-related companies that spearheaded the entire boom of
the 1990s -- is vulnerable to another steep decline. At the same
time ...
* The energy sector, which pervades almost every nook and cranny of
the consumer and corporate worlds, is prepped for another rise.
Understanding why, how, and when will be critical to your investment
success in the months ahead. So I dedicate this issue to both.
Part I
Why Technology Is So Vulnerable
I love high technology.
I started using mainframe computers long before personal computers
existed. My company's first personal computer was an Imsai 8080, the
same model that was later used in the 1983 MGM/United Artists
movie "War Games." And we were among the first in our industry to use
the Internet, a decade before the advent of the World Wide Web.
But my interest in high technology is one thing; my view of today's
high-tech stocks is another entirely. The chart of the tech-heavy
Nasdaq Composite Index tells the story in a nutshell, clearly
illustrating the following facts:
* The so-called "great rally" of 2003 barely made a dent in the
massive losses that preceded it. From bull market peak to bear market
trough, the total value of the Nasdaq fell $5.1 trillion. Since then,
it has recouped only $1.6 trillion, still leaving a net loss of $3.5
trillion.
* This $3.5 trillion loss remains despite massive government efforts
to stimulate the economy, including the greatest money pumping,
interest rate cuts, and tax cuts in recent memory.
* The rally has now run out of steam. After over six months of false
rally attempts, the Nasdaq is down 5.7% for the year and off 12.3%
from its 2004 highs made in January.
What's happening? The business is unraveling in two phases --
first
the decline in software sales which we are already witnessing ... and
next the fall in computer hardware, which is now on its way.
The Fall in Software Sales
In every boom and bust cycle of the tech sector that I can recall,
business software sales have always been the first to fall, and this
was certainly the case back in 2000.
On June 12, 2000, Citrix Systems confessed that it had to revise its
profit estimates from 21 cents per share to 9 or 11 cents per share
due to slow software sales in some of its divisions. The stock
plunged. Then, in July, one software company after another followed a
similar script in rapid-fire succession: Computer Associates on July
3 ... BMC Software on July 5 ... PeopleSoft and Veritas Software on
July 7 ... Siebel Systems on July 8 ... and many more. The Nasdaq
plunged uncontrollably.
Now, four years later, it's happening again! Look at the raft of
software companies that have warned their profits will fall short of
profit targets:
* Computer Associates has admitted that it will miss its second-
quarter sales targets by 3% to 5%, bringing in sales of $830 to $850
million instead of its previous guidance of $865 million to $885
million.
* Veritas Software has warned that its second quarter will also be
lower than expected because of weak sales to business customers,
dropping its profit forecast by as much as 19%.
* Seibel Systems has warned that it would miss expectations by a
country mile -- $301 million instead of the $353 million that Wall
Street was expecting.
* StorageTek has also blamed its second quarter shortfall on an
unexpected drop in orders.
* BMC Software has warned that it will make 11 to 14 cents of profit
instead of the 12 to 16 cents it previously promised.
* PeopleSoft will earn only 13 cents to 15 cents a share on revenue
of $655 million to $665 million, far below the 21 cents on $691
million of sales which had been expected earlier.
* Even the mighty Microsoft has missed its second quarter earnings
goals. Worse, for next year, Microsoft now expects to make only $1.24
a share, far short of the $1.34 Wall Street was counting on.
The stock plunged on the news. And that was just two days after
Microsoft gave its investors an early Christmas gift of over $75
billion -- a special one-time $3 per share dividend (worth $32
billion), a doubling of the regular dividend to 32 cents a share, and
a $30 billion spending spree for stock buybacks, the largest in stock
market history.
Which news announcement did investors respond to more? Well,
Microsoft shares were up only 54 cents on the day it announced the
giant dividend ... but they lost almost $1 on the day it admitted
weaker than expected earnings. That alone goes to show you how
vulnerable tech stocks have become in this market of overblown
expectations.
The Coming Decline In Hardware Sales
As you saw, back in 2000, the profit warnings from software companies
started to hit the newswires in June and July. Then, almost like
clockwork, the slowdown struck the hardware companies a few months
later.
On September 29, 2000, Apple Computer saw its stock sliced nearly in
half when it warned that its third quarter sales would
be "substantially below expectations." Dell Computer, Ericsson,
Hewlett-Packard and others followed with shocking news soon
thereafter.
Expect a similar pattern this time.
More Evidence
In the heady growth days of years past, Bill Gates would never have
dreamed of giving away a piece of Microsoft's cash hoard. Instead, he
would have pounced on the next hot new technology, thrown cash at it
in abundant quantities, and sought to dominate the sector.
Now, though, he has apparently recognized that the pickings are slim
in the high-tech industry.
So rather than embark on a series of acquisitions, he actually
prefers to hand the cash back to investors. Bottom line: If he can't
get excited about the industry, why should you?
Wall Street hasn't connected the dots yet. But they will very soon.
When they do, here's what I expect they'll be talking about ...
IBM: In the last five years, IBM was only able to grow its top line
by $800 million or less than 1%. That gives IBM a pathetic sales
growth rate of less than two tenths of a percent per year. Cost
cutting and financial engineering will only get them so far. Without
sales growth, IBM's stock is a ship waiting to sink.
Intel: One of the earliest signs of trouble at any company is a
sudden rise in inventory. It means that instead of flying out the
door, products are sitting on the shelves. So on July 14, when Intel
reported a 15% surge in inventories from the prior quarter, it was a
bad sign. Watch out below.
Applied Materials: Usually, companies at the bottom of the food chain
are among the last to get hit when business slows down. But when
their corporate customers start issuing warnings, you know the day of
reckoning is near.
Case in point: Applied Materials sells big-ticket semiconductor
equipment to companies like Chartered Semiconductor, the third-
largest chipmaker in the world and one of Applied Materials' biggest
customers. But Chartered has just warned that it expects its third
quarter sales to be flat because of weak demand, a bad omen for
Applied Materials.
Micron Technology: In 1996, The company pulled in $3.6 billion of
sales. In 2003, it had $3.1 in sales. So in seven years -- during
the
biggest tech boom in the history of mankind -- its business
actually
shrunk. Plus, it managed to lose $2.8 billion in the last three
years. And Wall Street thinks this company is worth $7.9 billion?
Give me a break!
Cisco: Why do you think Cisco, a company that continues to horde cash
and refuses to pay dividends, is one of the loudest protesters
against the proposal to charge options as an expense? I suspect it's
because they want to mask the massive dilution from issuing millions
of stock option to their overpaid executives. In 2003, Cisco bought
back 424 million shares for an average price of $14 a share. But at
the same time, it had 45 million options exercised at $7 and granted
another 199 million options exercisable at an average price of $12.
Bottom line: These companies still don't get it. They need to focus
on doing what's best for shareholders -- not necessarily what's
best
for insiders. They need to focus on boosting sales in a sustainable
manner -- not providing just a one-time shot in the arm for
investors.
Part 2
How The Supply/Demand Imbalance Is Driving The Energy Sector Higher
Again, the price of crude oil is hitting all-time highs. And again,
the pundits are trying to pooh-pooh it as a "one-time event."
Before, they blamed it on terrorist threats. Now, they're blaming it
on the Russian government's actions against Yukos Oil ... or strikes
by oil rig workers in Norway. Next time, they'll probably attribute
it to some other "unusual set of circumstances."
These outside factors directly impact the market, of course. But none
of them would have had a lasting impact on oil markets without a
fundamental, long-term imbalance between supply and demand in the
world today.
Here's the key: Unlike the oil shortage in the 1970's, the reasons
for the rise in prices today are not political. They are driven by a
worldwide shortage and an insatiable, growing demand.
Over the last six years, America's daily usage of oil grew by 1.4
million barrels a day. Going forward, the Energy Information
Administration predicts that U.S. demand for oil is expected to grow
by 1.6% a year for the rest of this decade in the U.S.
Meanwhile, China is soaking up nearly 40% of whatever extra oil the
world is able to produce and is now consuming 5.14 million barrels of
oil a day.
All told, the global demand is forecast to increase to grow from 81.4
million barrels a day in 2004 to 83.2 million in 2005. That growing
demand is culprit #1 behind the oil price increases. And no, we can't
pump our way out of this mess. OPEC is already pumping at more than
95% of capacity -- the highest for a quarter of a century.
Meanwhile, a powerful factor behind rising gas prices in the U.S. is
a critical shortage of refining capacity. There hasn't been a new
refinery built in the United States in 28 years, while more than 200
facilities have been shut down.
In 1981, the U.S. had 324 operating refineries. Today there are only
149. Worse, a refinery in California is scheduled to shut down in the
fall and two refineries in Texas have been for sale for the last
three years.
In years to come, new regulations -- such as requirements for
ethanol --
will reduce the amount of gasoline refiners can make. A new refinery
would cost more than $3 billion to build, not to mention the years it
would take to go through the approval process.
So can we buy gasoline from abroad? Not easily. Most foreign
refineries are unable to make gasoline that is suitable for sale in
the United States.
Bottom line: We are bumping along that precarious point at which
demand chronically exceeds supply. The real surprise isn't that oil
is trading at an all-time high of over $44 a barrel -- it's that
oil
prices aren't already a lot higher.
There are bound to be setbacks in-between. But this is another,
powerful trend that is just in its infancy.
What To Do
If you've been holding on to your tech stocks in the hope they're on
their way to their old glory, now's the time to face reality. It's
not going to happen.
Washington and Wall Street made a valiant effort to get things going
again, and they did lift the Nasdaq out of its deep hole for a while.
But now some of the same the dark clouds of the tech wreck are
returning, and the market is sinking again.
Meanwhile, many energy stocks continue to move up, especially those
that profit directly from more volume of shipping and/or higher
prices for crude.
Here are the steps to follow:
1. Exit virtually all tech stocks you may be holding. Be thankful
your tech stocks have come back this far.
2. Build a war chest of cash. Safety should be your #1 priority.
3. Position yourself to profit from rising oil and energy prices.
4. When you have a good profit, grab it, and move on to the next
opportunity. Although this could be a long-term uptrend for energy, I
believe a buy-and-hold strategy is not appropriate in today's topsy-
turvy world.
5. Diversify your portfolio with natural resources, precious metals,
and contrarian funds that are designed to profit from long-term
trends. (See Mr. Conservative and Mr. Speculator).
<< Index / Next Article >>
Questions from our Readers
Q. I agree the stock market is going to go south -- but not before
the
election! You seem to think it could happen sooner. Why?
A. The Fed is already raising interest rates despite the election.
And, the impact of the government's economic stimulus is already
wearing off, regardless of politics. This shows that the election
alone is really not a significant factor.
Q. What would be the impact on the economy of a Bush victory? What
about a Kerry victory?
A. You've got it backwards. It's the economy that drives presidents
to react in certain ways -- not vice-versa. When things are going
well, they give lip service to fiscal prudence. When things are going
downhill, they respond with all-out spending and stimulus. I don't
see much difference between either candidate in that regard.
Q. Suppose the warnings are true and there's a large-scale terrorist
attack on American soil before November 2. What would that do to the
stock market?
A. Just before 9/11, all our indicators were telling us the stock
market was overdue for a sharp, bear-market rally, to be followed by
another, steeper decline. Instead, 9/11 drove the market into a
convulsive decline, and then our scenario finally unfolded. My
interpretation: Although unexpected disasters can temporary drive the
market off course, sooner or later it will tend to resume its
original trajectory.
Q. I've been contacted by an insurance company regarding ROP (return
of premium) term life. Is this a good product?
A. The idea of getting back 100% of your money sounds good, ROP term
life product is an expensive marketing gimmick. Insurance companies
typically price the premiums so high that they're able to earn enough
on your money over the years to pay you back. The result is that
these are very expensive term life insurance policies. You can save a
lot of money with traditional, no-frills term insurance.
Click here for a list of the 20 strongest life insurance companies,
according to Weiss Ratings.
Q. I don't get it. Why does everyone worry about foreign investors
dumping their Treasuries? No matter what, there is always going to be
someone who'll be buying them, right?
A. Sure, but at what price? Think about any item -- a piece of
real
estate, a commodity, anything. What happens when the seller is
anxious to sell but the buyer is reluctant to buy? The market price
tumbles, right?
Q. I know you told us to sell Diamond Offshore and Tidewater a few
months back. But I'm still holding on. What should I do?
A. Exit your positions in both of these stocks. Concentrate on our
recommendations in the current portfolio.
Good grief, Welles, it's okay for Tech companies to make enormous profits in their heyday, but not for oil companies when their turn comes. Nothing lasts forever. While I believe oil will remain above mid-30's at least, and possibly even move to $50 or more if their is "an event", when the recession comes, most commododities will come down. As for now there is a shortage in several commodities. Phelps Dodge has outperformed all oil stocks. Why don't you blame copper for the ills of the world.
Zeev, did you sell MAGS or are you holding for an earnings run?
Re: HANS. This post is from another board.
<*** Beverage holding company Hansen Natural Corp. said on Friday it saw no reason for the recent decline in its stock price and is investigating the unauthorized listing of its stock on the Berlin-Bremen exchange. ***
The company said it saw "no reason" for the recent decline in its stock price????????? Is this company totally clueless about what is going on with its stock?
Here is a suggestion to Hansen: Check out your company's SEC filings. Insiders and large shareholders have dumped more than 3 million shares onto the market in the last 3 months. Pull up the "insider trades" at Nasdaq for HANS and you can see from April through June there is nothing but constant selling.
And this company can't understand why the stock hasn't performed well recently?????? Open your eyes, HANS. Get a clue.>
OMNI, a stock I own, recently announced that they discovered that they were listed there without permission and are requesting removal.
Tech Wreck Again?
That High-Tech Balloon Is Going Ssssssssss
GRETCHEN MORGENSON [NYT]
Published: July 11, 2004
THE warnings from technology companies came fast and furious last
week, cuffing investors who had bought their shares on hopes of
super earnings generated in a hot economy. Individual investors and
hedge funds alike had piled into tech stocks and enjoyed the ride
through 2003, convinced that 2004 results would justify the shares'
soaring prices.
But with software companies like Siebel Systems and Veritas
Software, hardware companies like Unisys and computer resellers like
the CDW Corporation and Ingram Micro Inc. cautioning that their
businesses softened in the second quarter, the sound of air escaping
a balloon is more than detectable.
Inquiring investors want to know: Is this a blip, or is the second-
quarter slowdown the beginning of a longer-term malaise in tech?
Fred Hickey, editor of The High-Tech Strategist in Nashua, N.H., and
a technology stock analyst who knows the industry down to its
nittiest and grittiest, says the setbacks in the sector are just
beginning.
Investors may have been lulled into thinking that the second-quarter
results at tech companies would be sunny because reports of
shortfalls had been relatively rare.
Companies typically alert investors to problems late in a quarter,
but by June 30, that front was quiet. "Normally the third month in a
quarter belongs to the confessors," Mr. Hickey said. But at the end
of June, he added "there were more positive preannouncements than
negative."
Nevertheless, two signs point to problems ahead for technology
stocks, he said. First, semiconductor shares, which often lead the
action in tech stocks, have gone into a nose dive. The semiconductor
stock index, known as the SOX, is down 11.2 percent this year, and
spot prices of computer chips are forecasting further declines.
But the biggest trouble spots on Mr. Hickey's horizon are the
ballooning inventories on tech companies' balance sheets. Already
rising in the first quarter, these inventories will probably show a
surge for the second quarter, he said, because few tech companies
appear to have cut production in recent months.
Investors may not have noticed how inventories have grown at some of
their favorite technology concerns. After all, balance sheets are
boring; income statements make for much jazzier reading. And
comparing balance-sheet items in quarterly reports requires some
work: most show only assets and liabilities from the current and
previous quarter, not from the same quarter during the previous
year.
IN the first quarter of 2004, inventories jumped 21 percent to 61
percent, year over year, at such tech stalwarts as Dell, Cisco
Systems, Intel and Texas Instruments. And that was when the economy
was cooking. So Mr. Hickey expects inventories to show a surge for
the second quarter. When inventories rocket, profit margins are
hurt. Hefty write-downs are another common result.
The sales shortfalls at some technology companies will become most
evident in the third quarter, Mr. Hickey said, making for some very
ugly earnings comparisons from the same period in 2003. Back then,
tax rebates were propelling consumers into the stores and gross
domestic product soared 8 percent, annualized. Computer notebook
sales in the third quarter of 2003, for example, were up 60 percent.
But this year, personal computer sales in the United States are
growing at rates in the single digits or low teens. PC and notebook
sales are also slowing in Europe and are actually declining in
Japan.
In addition, the tax rebates, courtesy of the White House, are
spent, mortgage refinancings have peaked and rising oil prices are
pinching consumers. So it's no wonder that sales of tech gear have
slowed.
Mr. Hickey said the inventory situation at some of the nation's
biggest technology companies reminds him of late 2000, when demand
from nascent Internet companies screeched to a halt. Although it
became apparent in March 2000 that the Internet boom, created in
part by a profligate Wall Street, was over, the impact of this steep
decline in demand did not show up in major suppliers' results until
much later that year and in early 2001.
"This industry is hopelessly optimistic," Mr. Hickey said. "They
always overproduce."
None of this would matter if technology shares were cheap. But they
are not. The price-to-earnings ratio on both Dell and Cisco is 32.
Texas Instruments' is 30, and Intel's is 26.
"On June 30, the bulls were extremely long and vulnerable, even
though underneath the surface there was a lot of trouble in a lot of
places," Mr. Hickey said.
Perhaps the companies issuing early warnings recently will prove to
be in the minority by the time all second-quarter results are out.
But technology has had a heck of a run in the past year. As they
say, nobody ever went broke taking profits.
http://www.nytimes.com/2004/07/11/business/yourmoney/11watch.html
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AND MY, HOW THEY HAVE BEEN TAKING PROFITS, AND PROBABLY STASHING IT ALL IN SWISS BANKS IN SWISS FRANCS.
Thanks, I listened to it yesterday. What I think will happen this week/next is that gold will move up to $418-$420, before pulling back. Hui, I think will go to about 210ish, then a pullback to I am hoping no more than back down to 202, though it could be lower. The Fed is behind the curve. All their business reports IMO are lies. I think the economy is already beginning to slow but inflation is ramping up. Greenspan is in a catch-22, if he raises rates enough to halt inflation, he stops the economy dead in its tracks, then he'll be worried more about deflation, then Humpty Dumpty falls off its wall.
Do you know when the Bradley Turn Date is/was? I sort of think the market is going to stage a small rally here for a week or so, unless the CPI & PPI look awful (likely). But they might just put off reporting them.
There used to be a time that the CPI reflected the real cost of living for the average American, real cost of food (my groc. bills are up at least 20-25% from a year ago alone), gasoline has got to be killing the commuter, medical bills/ins. are through the roof, to mention only a few things.
I mean really, how many cheap DVD's does a person need!
And I'll lay you odds that all the new "self-employed" are folks who have lost their jobs and benefits and have become Realtors. Even if they are just an associate they are classified as self-employed since they are independent contractors where they get no benefits at all and generally don't do so well for the first year or so.
I understand the number of listings is going up. Lots of people getting out while the getting is good.
Fed, you never talk about what you are in. I suppose mostly cash, a short fund, and maybe a little gold?
Gold looks very bullish to me.
HUI p&f
http://stockcharts.com/def/servlet/SC.pnf?chart=$HUI,PLTADBNRBO[PA][D20040710][F 1!3!!!2!20]&pref=G
Weekly Gold has all indicators in bullish configuration... I see a challenge of $425 coming.
http://stockcharts.com/def/servlet/SC.web?c=$GOLD,uu[h,a]wbcaynay[df][pb40!c50!c 200!f][iut!Le12,26,9!Lb14!Lp14,3,3!Ll14!Ld20!Lya7,14,28][J16908112,Y]&pref=G
Looking at the Long Term Monthly, any thing over $418 is very bullish...
http://stockcharts.com/def/servlet/SC.web?c=$gold,uu[h,a]mbcaynay[d19910902,2004 0625][pf][iut!le12,26,9!lb14!lp14,3,3!ll14!ld20!lya7,14,28][J16908112,Y]&pref=G
Euro looks bullish to me.
http://www.zsvideo.com/~princ1/XEU.ht1.jpg
I'm long several PM's too. And long some energy. I'll check out your others. Your timing has been pretty accurate overall. However, I thought your turn date was the 28th -- is it now the 29th?
Jim, are you long anything?
Also, explain what you mean by the turn date being on the 29th with a low on Aug. 8 or 9. I thought your last turn was for a down move, wouldn't the 29th be for an up move?
bethere. Who is your broker for your IRA?
Newly, that's what I meant to say, 3 days for the proceeds to clear. I have the same thing. I wish they would change it and I can't imagine why they wouldn't want to, afterall, it only means more commissions for them. The problem with me doing it so often in the IRA is that I hold a fair amount of stuff longer term, so there isn't a lot of cleared funds. I have occasionally bought with uncleared funds, and that's where the problem comes in -- if you sell it before the 3 days for clearing the purchase, that is called a free ride too. Kind of disgusting, if the market suddenly turns on you or news comes out on something that you want to bail on. Makes stops dangerous too. Does your broker do the same if you happened to dip into uncleared funds?
Newly, in your IRA, don't you have a 3 day rule where you trade, meaning you have to hold it for 3 days or get nailed for a "so called" free-ride, since supposedly the trade takes 3 days to clear (which of course we know that it does not since it is all electronic now). Unless you have an enormous amount of cleared cash, how can you go in and out so many times a day? Who is your broker for your IRA?
Someone on Fox News just commented on the naval fleet you mentioned sometime back. He believes they may be planning a blockade against Iran and maybe North Korea. Apparemtly there has been a radioactive spill at Tehran airport (and why they won't let inspectors in, i.e. they don't know how to clean it up fast enough. That new airport is closed. They suspect N. Korea provided the material, and despite what Iran says, they are continuing their centrifuge operations. Things are really heating up. If nothing goes in or out of Iran (including oil), oil prices just might move up, though right now, they appear to want to go down. Better buy gold soon.