A team of Merrill Lynch analysts, apparently figuring that if they huddle together it’ll be harder to sue them later, started it Wednesday by upping recommendations on a dozen chip stocks worldwide. Intel president Craig Barrett heartily assented, and both chippers and the wider NASDAQ duly spiked into Thursday before slipping back into profit-taking mode on that jobs-colored Friday. Had chips hit bottom?
What a difference a weekend makes. Monday morning, it was Intel sending both the chip-tracking Soxx (the Philadelphia Stock Exchange semiconductor index) and the wider NASDAQ down after Lehman Brothers said the world's largest chipmaker would slash prices by 50 percent on its high-end chips by month’s end in an attempt to land a mortal blow in its price war with rival Applied Micro Devices. And it doesn’t take a mind of silicon to figure that chipmaker profits aren’t likely to bottom out before chip prices do.
The good news for consumers is that PCs will continue to get cheaper, if anybody still wants one. The bad news for investors is that PCs will continue to get cheaper, if anybody still wants one. And so as we look down Wall Street at the start of this week, and see nary but flatness in the road and the possibility of one really big pothole.
That would be Tuesday, when the second-quarter productivity number hits. Remember Q1 productivity? It was down, for the first time in a long time, and a great cry went up from Wall Street to Washington that the engine of the boom had begun to sputter. The view in this space, or its equivalent back then, was that this was a temporary imbalance between the amount of goods manufacturers were able to not make and the amount of workers they were able to not pay. When layoffs caught up to production cuts, productivity would recover.
Well, Tuesday the numbers should bear that out, with analysts expecting 1.6 percent productivity growth in the April-June quarter after a drop of 1.2 percent in the January-March period. But that feeble rise still probably translates to a lowering of projections of long-term productivity, down to an anemic 1.5 percent.
Taken as gospel, a projection like that indeed invokes the catastrophic with productivity growth of 2-3 percent at the heart of everybody’s 10-year projections of everything from economic growth to monetary policy to budget surpluses, a long-term level of 1.5 percent could indeed be earthshaking. A fellow by the name of Albert Edwards, global equity strategist at Kleinwort Wasserstien in London predicts a full-on stock-market crasheroo.
That would seemingly depend on whether Wall Street (and its global counterparts) takes the number as truly ominous or merely another example (like the first quarter) of some tectonic imbalances that are part and parcel of our current and arduous process of cleaning up all the bits of bubble that have seeped into our economic aquifer. And whether they care about Tuesday’s other number, which figures to be equally depressing in its own, consumer-oriented way: Consumer credit, which is expected to reach a recent high of $9 billion.
Or maybe it’ll all be about Cisco’s earnings. Guess we’ll see.
If the Wall Street sky is still above us Wednesday, we get word on wholesale inventories, or how many unsold routers are sitting around Cisco’s warehouses. (The lower the better.) For wonks, the International Energy Agency publishes its monthly oil-market report. And the Fed releases its Beige Book of economic activity, which will probably a tale of some woe and probably better left unread.
Thursday is a slow day, with weekly initial unemployment claims (and a new four-week rolling average) and some import and export pricing nonsense that is just a precursor to the weekly Friday special: PPI.
Don’t worry about inflation and the Fed having to back off August 21 thanks to low energy prices, the PPI looks headed for some level of decline (forecasts vary from –0.2 percent to –0.4 percent) to match June’s of –0.4 percent.
As for chips, well, your guess is as good as mine. A smart (and easy) stance is to figure that between cell phones, PCs, hand-helds, set-top boxes, and all the other "smart" devices we’re always hearing are right around the corner, the market for semiconductors is not going away anytime soon. Corollary: With all that long-term demand, market dominance (and thus high profit margins) are going to be hard to come by, so when it does come back the chip market will be like any other crowded high-growth field a decent long-term investment.
But not until it actually comes back. Which could be the beginning of next year. Or the middle. Or 2003. Or just before Social Security goes insolvent. (OK, well, before that.) Some time between between next week and next election cycle.
Now that’s what you call a bellwether.