Invest Cautiously for the Rest of 2008

Maybe We Should Listen to Bernanke This Time Around

Economic numbers were released on Friday, and they weren't pretty.   The stock market action reflected the weakness in income and spending for July.  But what was so different from the positives earlier in the week?  The sour mood put the bulls in a corner and by day's end, markets ended their three day winning streak and were down for the third straight week.  The month was barely positive, but of course coming off a dismal June-July, odds favored a winning month. 

But, I found some words by Chairman Bernanke to be quite ominous and downright scary.  He stated simply that even with Thursday's better than expected GDP figures, growth will be substantially LESS for the remainder of the year.  He stopped short of predicting a recession, but clearly he is concerned about the economy.  He didn't mince words, either.  Inflation may be helped by lower commodity prices and less demand from a slowing economy, but there are still headwinds. 

Now, I've been more than critical of the Fed for its 'johnny come lately' policies.  Even more, the 'solutions' to hit the problem have most often missed the target or were band-aids on a flesh wound at best.  While the problem is clearly bigger than the Fed can handle, such acknowledgment would go a long way toward credibility.  It's time to pay attention and listen up!

Bear Markets Don't Always Go Down

It's not a mirage, we are in a bear market.  Just look around the landscape, there is not one group that hasn't had a bear swipe.  Financials, of course have been hit the hardest, what with the credit crisis and the housing debacle.  But let's take a look back here.  We've just ended August, but if you look back just two short years, you would notice the SPX is down 1%, the Dow is up 2.5%, and the Nasdaq is up 9%.  Mixed results, at best.  Further, the Nasdaq gains were mostly in 2007, just before the major financial blowups in 2008. 

While we associate bear markets with down moves, I tend to believe that sideways markets are also bears.  Opportunity costs are expensive....where would you have had your money otherwise?  Time can never be replaced, and we want our money to work for us, not against us.  How long this bear market will last is anyone's guess, but take advantage of it if you can.

The Tech Warning Bell Sounded With Dell

One group that seemed to be immune to any global downturn was technology.  We saw quite a few names boast of robust sales and a positive outlook.  Across the board, names such as Amazon (AMZN), IBM (IBM), Hewlett Packard (HPQ), Intel (INTC) and others said their visibility was clear.  Even with a sputtering economy and weakened spending, it was remarkable to hear such positives. 

However, Dell (DELL) provided a chink in the armor.  Long seen as a bellweather for technology, Dell missed on its bottomline number announced Thursday and warned of weakening global demand.  The market stood up and took notice, but perhaps this goes along with the dire words of Chairman Bernanke, that we should be bracing for a weak economy over the coming months.

Housing and Credit are Still a Mess, and Probably Getting Worse

The housing bubble has been pricked, and the collateral damage is being felt far and wide.  Sure, home sales may have bottomed, but that doesn't mean they will rise just yet.  Credit issues still permeate financial stocks, and the magnitude may not have yet been felt.  The reaction by the market is numbing, fear continues to be a non-factor.  Curiously, markets may have bottomed and are trolling along.  But one thing we know, if markets don't go up, they will go down.  Perhaps another chapter in this bad story is yet to be written, but for now.... it's caution as we look to the last half of 2008.

No disclosures.

Comments

[reinharden:]

One suspects that DELL's current problems have a lot more to do with DELL in particular than any other company. AAPL and HPQ and INTC all seem to be doing okay. STX is nearly supply constrained. And MSFT doesn't seem to be disappointing more than one would anticipate just due to Vista.

While not growing as fast as we'd like, the computer side of the tech industry is still clearly growing.

reinharden

2008 Sep 03 10:16 AM

[Gaucho420:]

Nintendo in Japan just raised its sales and profit forecast by 25% last week, for total global takes and they are a 100% consumer company. So its not all bad, but clearly, we are in a recession with head winds, as you mention. It will be a stock pickers market, as it has been. However, in this case I do beleive Dell has its own issues as compared to the rest of tech...not too say there might be weakness, but until I hear otherwise, Dell is using the global recession as an excuse for its weak sales and subpar products. And I can't stress enough the subpar part...in the past year I've had one person buy two laptops from Dell and they both broke for different reasons. Dell has a bad rep, at least with the people (consumers) I speak to on a daily basis...you try to avoid a Dell now due to their poor quality and customer service. I bought an HP earlier this year due to these reasons and I haven't been disappointed.

But anyways, yes, it will be a tough market but I am not yet convinced the rest of tech will be hit as hard Dell.

2008 Sep 03 11:08 AM

[ain't no fo...:]

I've been watching DRAM and Flash memory prices in Taiwan... they've been in an absolute free fall the past 6 weeks after topping out in the late Spring. I suggest people keep an eye on those prices.

www.dramexchange.com/

Taiwan stock market has been extremely weak the past few weeks, with 100+ point down days very frequent.

SOXX is testing multi year lows.

My belief is, where semis go, so goeth tech.

2008 Sep 03 01:43 PM

[ozcutty2:]

Dell doesn't have any pricing power, that is the main problem.
I am still long Cisco, they have more pricing power and $26 billion in cash to buy up the competition in this weak market. You can get away with cheap pc's but not cheap network equipment!

2008 Sep 03 09:59 PM