The bubble-logic dares to perk up again and some thoughts on the bloodless coup in Cali

By Duru

October 12, 2003


Consider this note a follow-up to a missive I sent earlier decrying the market's willingness to pay bubble prices for certain stocks, particularly in tech. I found a more complete quote to put this alarm bell in better context. The kind of excuse for buying high that I read here is eerily similar to the misguided logic I read all the time in those final months (quarters?) before the bubble popped. I will again emphasize I am not calling for a cataclysmic crash here similar to 2000. I am more trying to put the market's strong performance in proper context....the buying bias remains strong in today's market, and it must be respected.

There are FOUR important things to note here - all classics from the bubble. 1) Given that this upgrade moves the rating from HOLD to BUY, this analyst likely has been negative on Intel for some time, perhaps through this entire rally, and now, with the stock at pre-bubble valuations, they are FINALLY rating the stock a buy. Classic case of allowing strong price patterns to provide the courage to buy high - self-serving logic. 2) This analyst is also encouraged that "the market's sensitivity to valuation is low. This again provides the courage to buy high. A classic sign of the herd mentality building in the market, that is, strong and high prices justifies buying which leads to even stronger and higher prices, etc... 3) Their valuation model and logic is reaching out into 2005. Give me someone who claims to know where the economy will be in 2005, much less a particular company's business, and I will show you someone willing to, yep, buy high....! 4) The analyst compares Intel's high valuation to the even higher valuation of its peers and figures that on a relative basis, Intel is CHEAP. Imagine how cheap the stock of their peers will appear once Intel is more expensive than they are!

Woo-hoo! Bubble on!


From (Oct 10, 2002):

07:16 ET Intel upgraded at Deutsche (INTC) 29.77: Deutsche Securities upgrades to Buy from Hold and raises their target to $35 from $26; while the mkt is generally positive about INTC's Q3 results and Q4 guidance, they believe that the upside represented by their $0.30 Q4 est (vs $0.26 consensus) provides a positive near-term catalyst for the stock; firm raises their 2004-05 ests well above consensus, as they believe continued contribution of Centrino and HyperThreading will help CY04 gross margins, while INTC's 300mm ramp could add 600-700bps to the gross margins in 2005. While the stock's 2004 valuation (29x) is close to former pre-bubble peak levels of 30x, the mkt's sensitivity to valuation is low and the stock is cheap vs peers TXN (36x), XLNX (37x), and ALTR (39x).


On a positive note on something that is driving me CRAZY right now...although I am quite disappointed that my home state's inability to reason about the current economic mess has led to a successful coup attempt by "The Terminator," one intriguing possibility that could come out of this madness is that "Ah-nold" might just be able to summon up enough voodoo magic to goose California's economy to the point that tech companies can get an extra boost in the coming year or so. Certainly, if Ah-nold has any hope for winning re-election, generating excitement in Silicon Valley and investment could go a long way to helping him. Scaring up capital gains through re-inflated stock options and a red hot tech stock market could go a long way to refilling state coffers and is one of the best techniques we may still have to suck in money from the rest of the country. Heck, the Bay Area was the only region outside of LA that voted decisively against the coup - just imagine how firm a grip the governor-elect could muster with fat, happy tech-heads in his hip pocket?! Just something to keep an eye on...


Ó DrDuru, 2003