Overnight markets were uneventful, as they have been, and the early going here saw the indices slightly green, while beneath the surface, speculation continues to be the flavor of the day. While it is fun to watch these highly valued companies with highly debatable future prospects (at least from a sustainable earnings standpoint) fluctuate, there really isn't too much information in the action yet, though at some point there will be.
Back to the Future
In any case, the trend that's been developing in the stock market is one in which rank speculation is embraced and negatives elsewhere are essentially ignored. At around this same time last year I commented that the market felt to me a little like 1998, though I couldn't really figure out what that meant. It feels more like that for now, but far more dangerous. On the other hand, so far the intense speculation and truly absurd valuations haven't spilled over everywhere (yet while bonds are so mispriced, by extension, all stocks are as well).
An important data point that I think has essentially been ignored (though my reading of the newspapers and Wall Street accounts is way behind what it would normally be, given my recent knee surgery), is last week's massive lowering of revenue/earnings guidance on the part of the always optimistic John Champers at Cisco. However, speculators are so drunk these days that they see every problem as company-specific.
Not seeing the ramifications of Cisco covered very well anywhere, I took the opportunity to check in with my good friend, Fred Hickey, who filled in the blanks for me and helped clarify my thinking. Thus, I think that Cisco's customers and suppliers merit observation from a catalyst standpoint, as do other big tech stocks, as something may be brewing. While Cisco may have certain specific issues, it is the number one networking supplier on the planet, thus, for it to cut its outlook for the next couple of quarters as drastically as it is has means others will be impacted in the technology world, since Cisco touches so many other companies.
A company like Cisco doesn't just stumble all by itself to that magnitude. Therefore, I think one of two factors could be at work. There could be a slowdown in China and other countries that is worse than folks expect (I would not be shocked if that were the case, as Cisco has certainly not been the only big tech company to experience "China" issues). There also could be a bit of an anti-American mood on the part of various countries given our policies on spying, etc.
Don't Miss Out, Everything Priced to Move
The point is, there are some pretty good-sized problems brewing in the tech world, and if we start to see some of these companies have real revenue and earnings problems in the next couple of quarters (which is likely), I would be surprised if the high-flyers manage to be able to skate on by. That means that sometime in the next earnings season, for the first time in ages, it might be worth taking a stab at some tactical short sales just for trades. We will have to see how that sets up, but given the intensity of the speculation, the weakness in earnings and revenues could be significant enough to matter. After all, the only reason these stocks are where they are is because they've been going up, and they could go down even faster and farther than the current "renters" think.
Turning back to the action, the market went nowhere and closed slightly red (the Nasdaq lost 0.5%). Away from stocks, green paper was mixed, bonds were a little weaker, and the metals were flattish.
Positions in stocks mentioned: none.
