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Friday, October 24, 2008

Crazy talk

The SOX opened this morning at 202, which is slightly below the 2002 low.

Normally I think historical references like that are stupid and mean nothing. You can't compare time periods as if they have relevance. Times change. But the semiconductors are an interesting case study for this environment.

In 2002, we were on the backside of the dot com bubble. I was managing a book for a hedge fund that had ballooned from 100 mil to a billion over a year – the hedge fund, not my book. My book was 200mm. Anyway. The semiconductor business was absolutely horrendous. Every quarter, companies would guide lower. Broadcom was trading at 9, down from 200. Corning, who is now the largest producer of flat panel glass in the world, was at a dollar and people were worried they'd go bankrupt. Amazon was a single digit stock. It was freakin' bleak, my friends. Capital spending kept dropping, bank financing was virtually non-existent. The IPO market was utterly dead. So I'm looking at the chart and wondering if the future prospects for semiconductors are really worse now than they were in 2002 coming off 2001. And I have a lot of trouble getting to that.

The consumer may wind up unalterably shell shocked from the sheer asset devastation occurring in everything he or she owns. And my guess is there isn't going to be much of a bounce. I still think at the bottom no one wants to buy them. No one wants to look at them. That's how it was in tech then. That's how it's going to have to be in fertilizers, steels, oils and banks. People will not run to buy these stocks every day and jam them up 10% because recovery is imminent. It's just not what happens. CNBC will not have its highest ratings in history. No one will care anymore.

I really like the valuations in semiconductors. But I don't see a bottom in the broad market yet. It's a tough spot.


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