Thanks for the heads-up

Again, the burgeoning consensus fallacy being engaged by the clueless is that you can take shelter in technology related stocks as the world's financial structure implodes around them. Yet, for many, especially in the semiconductor arena, there can’t be a sector that is more levered to real “non-financial” economic activity. And for those that believe that a popping of the world’s credit bubble, which in many ways had become the economy, will not affect aggregate consumer demand for gadgets like iPhones, Blackberrys, and flat panel televisions are essentially living in denial. Last night, Applied Material (AMAT) was the latest semi-related company to issue mostly bad and worse-than-expected news. The company reported that orders for the quarter had dropped 15-percent. And even though revenues came in as expected, 1-percent higher than the same quarter 1-year ago. I noticed a decent sized increase in its Accounts Receivables to $2.24-billion versus $2.12-billion as of April 29th and $2.03-billion at the end of October 2006’s quarter end. Applied predicted that orders in the current quarter would be flat to down 5% from the third fiscal period, which ended in July and that revenues would decline 5% to 10% over the same period. Although weak demand in its display products did translate into weakness for companies like ASML Holdings (ASML), another major capital equipment maker, KLA-Tencor (KLAC), actually traded green for much of the day before succumbing to a bit of “forced selling” pressure as well as the Dow Industrials suffered yet another triple-digit loss. I continue to shake my head in amazement as I see folks on the margin begin to worry about their ability to get money out of their money market accounts, while the market treats much of tech as a “flight-to-safety.” It’s the current abhorrent display of malinvestment that many folks will regret in coming quarters. Since June 1st, well before the most cluelessness among us had any inkling that what they had perceived as a stout “liquidity-driven” bull market was in fact a debt-ladened pyramid scheme, a number of issues are still up fairly substantially since their June 1 closing prices. Including: Nvidia (NVDA), up 9-points, KLA-Tencor (KLAC), up 2 ½-points, Amazon.com (AMZN), up 7-points, Apple Computer (AAPL), up 4-points, Under Armour (UA), up 12-points, Crox (CROX), up 11-points, and most absurd among them, Research in Motion (RIMM), up 39-points. These are all either consumer discretionary-based companies or highly levered to the ebb and flow of economic activity. Since June 1st, in spite of whatever good news these respective companies have revealed about there specific operations, they are now confronting an environment that beforehand had been totally unaccounted for just 75-days since. TOTALLY!!! For readers that were around to experience the last massive bubble to pop, technology stocks, it was the credit market that tanked before the underlying stocks caught on that something was amiss. The reason credit issues are a tell for equity is because bond holders tend to be far more concerned with return of capital and not return on capital. The latter is important, but it takes a back seat to the former. When credit markets begin to adjust for the possibility that the return of their capital is at risk, you can rest assure that the equity component is at dire risk. But the equity players tend to be the dreamers and gamblers and they are also, unfortunately for their own well-being, the most clueless….. You might think its odd that I obsess over the happenings among tech when the real fireworks are occurring in credit markets. Well, its no longer a secret that credit markets are essentially imploding. At this juncture I can only recount the gory details. Countrywide Financial Corp (CFC) was downgraded to "sell" from "buy" by a Merrill Lynch (MER) analyst, who said bankruptcy may be possible if liquidity worsens. Not that I disagree with the Merrill analyst, I’m just surprised that more Wall Street firms didn’t put a "sell" on shares of the nations biggest mortgage lender before it had already dropped 48-percent since early January. The analyst added that, “If liquidations occur in a weak market, then it is possible for CFC to go bankrupt.” Merrill had rated Countrywide a “buy” since April 2005. Thanks for the heads-up.