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Real Bull

The scandal-obsessed business press can’t help but focus on yesterday’s news, but right now there’s an honest-to-goodness rally going on in certain sectors. Including, believe it or not, tech.

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Just when America’s hate affair with stocks rolled into high gear, something totally preposterous happened: Companies started doing better. Not only did they begin to report better first-quarter numbers, but those doing the most outlandishly positive reporting were none other than the reviled tech companies.

You can’t tell from the headlines. The industrial-production numbers that were just announced were simply awful. So were the employment numbers. So were the retail-sales numbers. In fact, I can’t think of a single macro number that showed anything positive.

But all of those numbers are wrong. That’s right, all of the aggregate numbers that we have seen reflect a period that was consumed by fear and war. Underneath the macro, in company-wide data from late April and early May, we’re seeing an explosion in sales from a host of sectors, with tech being the true standout.

How can I be so confident that the turn in the economy, particularly in the bedraggled tech portion, is for real? How do I know that when it comes, it will shock us with its robustness and strength? Because the stock market’s been screaming since October of last year, and lately the screams are so loud that soon either your broker or money manager will hear them.

The averages, led by the NASDAQ, have been on a tear for so long now that you would think it would have hit the consciousness of someone—a newspaper devoted to business, perhaps, or a television station that caters to the trade. But apparently the temptation to obsess about scandals, whether they’re about corrupt research, excessive pay, or just plain old corporate fraud, is too great.

We spend months bemoaning the collapse of the telecoms, but not ten minutes talking about how Lucent and Nortel are going to survive and how Deutsche Telecom, Nextel, and Verizon are now actually prospering. Most people think that every airline is going out of business, but Delta, AMR, and Continental have been among the best performers this second quarter, and the worst does appear to be over. When we last saw JP Morgan in the headlines, it seemed like its dividend and CEO were both about to be axed. Now a dividend boost seems more likely, and the CEO has prevailed. Even Argentina and Brazil, two countries that seemed on the verge of the national equivalent of Chapter 11, have shaken off their shackles; the Argentine peso is the single best-performing asset in the world for 2003.

But nothing can equal the comeback of America’s tech sector in terms of its breadth and its percentage gains. Admittedly, the gains are off a small base. But the semiconductor sector’s been torrid, and the leader of it all is, once again, mighty Intel. While the stock’s not going to go back to its pre-2000 prices anytime soon, the possibility of the company’s earning as much as a dollar per share next year has me back into the stock for the first time in three years. It’s not just microprocessors; chips for broadband and wireless have exploded and are, for some companies, such as Broadcom, actually back-ordered, a phenomenon that bears thought would never happen again.

“Chips for broadband and wireless have exploded and are, for some companies, actually back-ordered, a phenomenon bears thought would never happen again.”

What’s driving the recovery? Okay, are you sitting down? The Internet. I know you don’t want to hear it. I know you hate anything that smacks of the word dot or the suffix com. But I can’t help it; I am seeing it with my own eyes. Broadband, which rolled out anemically because of technical and financial difficulties, is now aggressively coming online. With it comes a promise that eBay, Amazon, Yahoo, and USA Interactive can finally tap: a consumer who truly likes ordering, reading, and buying things on the Net.

The transformation, a dream turned nightmare just three years ago, is finally happening. Wall Street speaks of eBay, Yahoo, Amazon, and USA Interactive with reverence (replacing Dell, Intel, Cisco, and Microsoft as the must-own stocks). These companies keep reporting earnings that are shocking to their acolytes and even to their managements, most of whom are so chastised by the turn-of-the-century stock debacle that you can almost hear them knocking on wood when they report their profits on their respective conference calls.

The spur, of course, comes chiefly from the wired world of Comcast and the unwired world of the Dell-Broadcom-Intel faction. Both Comcast’s cable modem and Dell’s wireless businesses are truly booming, with consumers eager to be online wherever and whenever.

It’s not just tech. Stocks with meaningful dividends, of which there are a plethora in the Dow, keep climbing in anticipation of some sweet tax breaks coming from the reduction of dividend taxes. Financials have been huge beneficiaries of a steepening yield curve (Wall Street gibberish for interest rates that are incredibly low on the short end and high in the out years). Another round of refinancings could trigger more consumer spending, hence an explosion in the prices for retailers and banks.

If I didn’t know better, I would be trumpeting that we are in a New Bull Market, with Dow 9500—up 800 points from here—soon beckoning. But what’s the point of hailing it? I feel like one of those dot-com managers; it all seems too good to believe, except for the ever-expanding list of new highs, which, by their nature, can’t lie.

So I say, “Shhhhh, I don’t want to jinx it, but if it acts like a bull, smells like a bull, and stampedes like a bull, well, you get the picture.”


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