As mentioned last night, Microchip Technologies (MCHP) warned about its current quarterly results and guided its ensuing quarter lower as well. The stock was actually punished today by the tune of 12+%. This has been a rarity among members of this cult (semiconductors), whose normal method of operation usually entails the declaration that business had improved dramatically over the past few hours encapsulated within an earnings warning and therefore everything will be just fine. Absent, however, with this one was any mention of a massive stock buyback. Perhaps this particular operator may deem cold hard cash a useful commodity amidst the very probable likelihood of global recession in 2008….. But the madness was present again in other areas. Goldman Sachs (GS) set a new all-time high today eclipsing its July high of $233.94/share. Looking back at the wild unabated orgy of just 60-some days ago made it seem highly unlikely that Goldman and its ilk would soon match those recent all-time highs for quite some time; especially after what we have since found out about subprime, hedge funds, structured credit and derivatives-- essentially its entire clientele. Chalk-up another company whose market-cap has rebounded by an astounding $33-billion in roughly 55-days from its August 16th lows of $157/share closing today at $239/share. Even if a good portion of their client-base have been dealt a second chance by an abysmally misguided U.S. Federal Reserve and its egregious and immoral policy, it seems unfathomable that investors can possibly delude themselves into believing that what lies ahead for Goldman Sachs could even remotely approach expectations by this same touched crowd what they had believed might lie ahead pre-credit meltdown. Even with the Fed’s assistance, there is a near zero probability that that euphoric environment of mid-July, where the battle cry was “liquidity, liquidity, liquidity,” will be matched anytime soon. Recall that that was just a few weeks after Blackstone Group (BX) had wrung the bell for the private equity bubble. Even still, if you wanted to see a sick looking market, today was it. We’re fast approaching a market where the same people (or computer) trade pieces of paper back and forth amongst one another with essentially no discern for value, while the real economy sinks. It was yet another day of very narrow participation that was focused on the indexes almost exclusively; most likely a function of programmed buying of futures. Semiconductors were especially weak as I sense that their day of reckoning may be nigh…. And after the close, yet more evidence that ex-financial engineering, the rest of the economy is slipping. Alcoa (AA) reported Q3 earnings of $0.64 per share, $0.02 worse than the consensus of $0.66 per share. Revenues reportedly fell 3.2% year over year to and less than consensus even as aluminum prices remain near record levels. The company also felt that given the bad news it was in need of an announced buyback to wash away the bad. All financial engineering, all the time. The company said it has increased its share buyback authorization from 10% to 25% of all shares outstanding. Shareholders must wonder way the company hadn't thought of buying back all this stock when it traded considerably more cheap about five years ago. Obviously cash will be of no use to Alcoa in the even we slip into a recession? Also after the close, another former Dow component, International Paper (IP), warned that its Q3 earnings will be less than analysts' consensus estimates-- $0.52 versus $0.63 per share expected. And lastly, ChevronTexaco (CVX) warned too of lower projected earnings due to a sharp decline in refined-product margins for its downstream business. There was an excellent article in the weekend version of the Wall Street Journal that describes the recent “backwardation” of the oil futures market and how all kinds of companies had made some pretty bold bets on the opposite (contango) to continue. Even blueblood brokerage, Morgan Stanley (MS), apparently had found this “storage trade” to be too irresistible, thus getting itself into the oil storage business. As we reflect back on this period, there are so many instances of such that will make us shake our heads in wonderment and ask ourselves, “Shouldn’t that have been a sign?”
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