"Is tech the go-to sector (for now)?" For now, Mr. Market seems to be giving no reason to think otherwise.
As I pointed out in that recent column, it was pretty knowable that chip companies were in a good position to win at "beat the number" during earnings season. (Hats off to Linear Technology (LLTC, news, msgs), Altera (ALTR, news, msgs) and, of course, Intel (INTC, news, msgs).) They have benefited from a demand for products such as netbooks and smart phones, and from Cash for Clunkers, the program that boosted car sales. Cars, of course, carry lots of chips.
Potentially, some building of PC units ahead of the release of Microsoft's (MSFT, news, msgs) Windows 7 has helped as well. (Microsoft publishes MSN Money.)
Because that demand came after orders had been reduced too far, the combination of the two phenomena has resulted in the times between double ordering and delivery stretching out, and thus double ordering gives an appearance of strength that isn't necessarily real. For example, Nokia (NOK, news, msgs) experienced component shortages even as its revenue was only OK.
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A high-tech feedback loop
People will make a big deal out of Intel's earnings. But as I've noted in past columns, Intel is at the back of the food chain, which is why the chip maker is often wrong in regard to where its business is really going. There is no information to extrapolate about the economy or business in general from these results, just the health of speculative juices on Wall Street.For the time being -- and this obviously could change -- it seems that good news is being treated as such while bad news continues to be ignored. Thus we have not yet reached the point where the market is ready to roll over, though the advance does seem to be narrowing some -- an early indication of a potential topping process.
It is not knowable how long the rally will continue, as higher prices can feed on themselves for a while. Nonetheless, folks need to remember that the underlying economic problems are not being addressed and that the government money printing that has helped power stocks higher has consequences -- those being a weak currency and eventually a weak bond market, as well as inflation at some point. (Read "Your dollars are just Monopoly money" for more on this.)
So I'm now trying to figure out when it will be time to short the market again, making money as it goes back down. (However, when it comes to getting short again, I won't try to capture the top of this rally. What interests me is trying to catch a failed rally.)
Watching an ultrashort bond ETF
I also have my eye on the Treasury bond market. I have begun paying closer attention to Ultrashort 20-plus Year Treasury ETF (TBT, news, msgs), a leveraged double-short exchange-traded fund covering long-term bonds.I'm watching it but not yet buying. It was never my goal to catch the top of the bond market -- i.e., the low in rates -- but I do intend to catch the functional equivalent of a failed rally here as well, if possible.
Video: Is the tech sector too hot?
The bond market action is especially worth watching in conjunction with the weak dollar, because those developments will be the early indications of the funding crisis I've written about before.
There's no telling how long that will take to play out or how many head fakes there might be along the way.
But when this funding crisis really begins to unfold, it will not be solved by any quick fixes, and much higher interest rates (plus all that goes with them) will be the result.At the time of publication, Bill Fleckenstein did not own or control shares of any company or fund mentioned in this column.
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