+ ....Something is seriously wrong with the big-cap techs. Six months ago, the combined market valuation of the 12 largest U.S. tech stocks (with market caps over $30 billion) was $1.2 trillion. At Thanksgiving it was $1.2 trillion. On New Year's Day, it was $1.2 trillion. March 8 (when his newsletter was written) they're at $1.2 trillion. Today, two weeks later, they'd be well below $1.2 trillion. As Fred points out, "if you had invested equally in Microsoft (MSFT), Intel (INTC), Cisco (CSCO), Dell (DELL), Hewlett-Packard (HPQ), Oracle (ORCL), Texas Instruments (TXN), Qualcomm (QCOM), Motorola (MOT), Applied Materials (AMAT) and EMC six months ago, you'd have seen no growth in your investments, despite the overall double-digit market gains and near hysterical trading in low-quality 'tech' names." As an example, he mentions Mama.com (MAMA) and Natus Medical (BABY).

+ "The subtle stall-out U.S. tech may be a warning to investors," says Hickey. At the end of all bull markets, the stock leadership changes and new sectors emerge to eventually pilot the next bull market wave. ... Big-cap tech stocks were certainly the leaders of the 90s bull market. However, thanks to the unprecedented stalling actions of the U.S. government, the 2000-2002 bear market's work has been left incomplete. Investors never capitulated, valuations never approached that of typical bear markets and the leadership never changed...."

+ Meanwhile, despite massive government stimulus, tens of billions of dollars in tax rebates and refunds, the $520 billion in U.S. budget deficit spending this year, negative interest rates, a booming Chinese economy and even a pickup in Japan, the two largest computer vendors in the world, IBM and Hewlett-Packard could each only grow their revenues last quarter by 1% year over year. ... The problem is that as a result of the Federal Reserve's wildly easy monetary policies (the U.S. M3 money supply has doubled since 1995); we are still saddled with the largest tech capacity overhang in history.

+ "The tech market is so glutted that PC markets, Dell , HP and Gateway (GTW) feel they need to sell TVs and other consumer electronic gadgets in a market already crowded with such established brands as Sony, Panasonic and Samsung. There are 100 or more cell phone makers in the world, all planning on gaining market share in an increasingly saturated market. The result is that prices continue to fall everywhere in techland. When there's PC unit growth, there's no revenue growth. While carriers subsidize a cell phone replacement binge, sales are stolen from future periods. Says Hickey, "It looks to me that tech in general is a tough place to make any money at this time."

+ Though Dell still sports a hefty 32 P/E ratio, its recent growth rate is half of that. The question that may be bothering Dell investors and IBM's, HP's, Cisco's, Microsoft's, Intel's, etc.) is what will happen to the growth rates later this year when the last gasp of stimulus from the U.S. government fades away? Once the consumer spends his entire tax refund windfall? What comes next? (Hickey points out, the U.S. government was Cisco's best customer last year, driving spending in the cause of the war on terrorism.)

+ While Hickey frequently observed how relatively well managed the state of New Hampshire, here in Nashua the city aldermen have been piling bond issuance upon bond issuance for years. ... "We have the best sports facilities of any city in the area, and none of it is paid for. The city budget is primarily funded through property taxes, and to date, property price levels remain inflated. Nevertheless, budget troubles have finally hit this year and divisive spending limitations have been imposed. The City of Nashua has finally hit the wall. In all likelihood, so has the state of California and the Federal Government, though the Japanese government is doing its damnedest to keep the game going a bit longer."

+ In February, free-spending President Bush proposed a much lower than expected 1% increase for information technology spending in the fiscal 2005 budget request, after several years of big boosts. ... Cisco investors may be finding it tougher to justify the 38 P/E ratio given that its best customer is cutting back.

+ As to Hickey's portfolio - large positions in short-term government bonds of the "commodity currency" countries (Australia, New Zealand and Canada), a significant position in gold through physical ownership of the metal and a large position in Newmont Mining (NMC). He also has put options on Nokia (NOK), Texas Instruments, STMicroelectronics (STM), Fairchild Semiconductor (FCS), Intel, Qualcomm, Applied Materials (AMAT), Research in Motion (RIMM) and a credit card company, Capital One (COF). Says Hickey, "I'm betting the debt-drowning consumer will die."

As to what to invest in? Hickey muses, "Maybe it's time for new leadership, to sectors that were so out of favor for two decades that there was little new investment, where there is undercapacity and rising prices -- energy stocks, metals and other commodities." He points out that over the past several months, commodity prices have soared -- gold prices to seven-year highs, silver to 6-year highs, platinum to 24-year highs, copper prices to eight-year highs, soybeans to 15-year highs, crude oil prices back to levels seen during the pre-War Iraq tension last year and gasoline prices to just pennies below all-time record levels. Hot-rolled steel prices are up 80% year over year. Over the past ten weeks, framing lumber prices have jumped 20%. Recently, the Reuters Commodity Research Bureau index of 17 commodity futures hit a near 20-year high. ... The Goldman Sachs commodity index doubled over the past two years to a 23-year high.

Our portfolio has done well with palladium company, Stillwater Mining (SWC) -- up 123%. I need to spend time this weekend identifying sound opportunities in these areas. If readers have serious ideas in these areas, please drop me an email.

God bless the Irish:
One day an Irishman, who has been stranded on a desert island for over ten years, sees an unusual speck on the horizon. "It's certainly not a ship", he thinks to himself. As the speck gets closer and closer, he begins to rule out the possibilities of a small boat, then even a raft.

Suddenly, emerging from the surf comes a drop dead gorgeous blonde wearing a wet suit and scuba gear. She approaches the stunned man and says to him, "Tell me how long has it been since you've had a cigarette?"

"Ten years," replies the Irishman.

With that, she reaches over and unzips a waterproof pocket on her left sleeve and pulls out a pack of fresh cigarettes. He takes one, lights it, takes a long drag and says, "Faith! Is that good!"

And how long has it been since you've had a sip of whisky?" she asks him.

Trembling, the castaway replies, "Ten years."

She reaches over, unzips her right sleeve, pulls out a flask and hands it to him. He opens the flask, takes a long swig and says, "Irish whiskey - 'tis absolutely fantastic!"

At this point she starts slowly unzipping the long zipper that runs down the front of her wet suit, looks at the man and asks, "And how long has it been since you've played around?"

With tears in his eyes, the man falls to his knees and sobs, "Oh, sweet Lord, don't tell me you've got golf clubs in there too."

Tennis: Tomorrow is Super Saturday at the Pacific Life Open in Indian Wells, CA. Watch it. There'll be some truly great matches. I have tickets. Have a great weekend.

Harry Newton
I make my daily column (Monday through Fridays) freely available for three reasons: First, writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I'm hoping some of you will send me your investing concerns. To email me, Click here

Go back