Rising sharply

investmenttool.com Cover Story

I was a little surprised last week when the market hit a rough patch in the road. I shouldn't have been. Every time I get optimistic about things in the equities markets, that is a clear short term negative signal.

There was a lot to be positive about last week. The earnings season was almost over and the predicted catastrophe did not occur. Earnings numbers in general came in a little above what was sharply lowered expectations.

Compaq Computer hurt matters by missing estimates by a penny and giving a gloomy outlook. Compaq is losing a price war in all sectors of its business to Dell Computer. Dell's build only with an order business model is superior to Compaq's and Dell has decided to grab market share now.

Compaq also lost its number one status in worldwide computer sales during the past quarter. This had long been expected, as was the response. "Dell has won the war for the 1990's, Compaq is looking ahead" said a spokesman. Translation. We lost, therefore the market isn't that important to us anymore.

The prospects of a long term price war sapping profits in the industry were deepened by Intel cutting the prices of its still to be widely produced Pentium 4 Chips. The consumer market has been soft for months, as has the corporate PC market. Hewlett Packard and Gateway announced further job cuts this week.

HP's cuts were interesting. They were cutting loose 3000 managers. Nobody will actually lose their job though. The managers are not being shown the door. They are being reassigned at full pay to the field. They will be working in the response center, teaching classes and doing all kinds of things that productive ex managers do.

Sounds like fun, an perhaps these new workers will produce some revenue instead of management analysis. A recent visit to HP's Chicago education center made the tension easy for me to grasp. Lots of people have their résumé's ready.

So, now that my optimism has been shot in the foot, its okay to be gloomy. The real threat that out of control energy prices could push the economy into recession is enough to make me cautious on stocks.

Now that my mood is changed, the market may feel free to rise sharply.

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Shmuel Protter
investmenttool.com

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