RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:Semiconductor index collapsingSemiconductors are cyclical and so are commodities. There are good time. There are bad times. We've had a long run of good times and PHO's stock is up big. Recessions have typically come every 5 or so years and we are 7 years post the last recession. Mathematically how close are we to the next recession given the historical frequency; especially given how the markets are now showing signs of stress? We are overdue, in my opinion. PHO knows its business can be very cyclical and has built large cash holdings to see itself through. PHO is also significantly dependent upon a few major clients so you better be sure they are safe when the bad times hit for it wouldn't take many decisions to hit PHO hard. I don't know who PHO's major clients are or how safe the current level of business will be in a downturn.
PHO also sells into China, and the oil market.
Commodities have been crashing along with commodity currencies. Has the bottom fallen out of the market? The Canadian dollar is now below the lows of the last financial crisis. That seems a significant new threshold as many wonder if Canada is now in recession. The Australian dollar, another commodity currency and significantly dependent upon China, is testing its long-term trendline. Latin American currencies have been plummeting with Brazil in serious trouble. Resource prices have now fallen to levels not seen since 2002. Something severe, something different is happening.
World trade has also had its largest drop since the last financial crisis.
Is the world headed for a down-cycle?
The market breadth in the US has become very narrow. The DOW broke its 50-day moving average this month, and its 200-day moving average this week. The US markets aren't going up like it recent years and the DOW is now red for the year. Are we losing momentum? Many believe the US is also in a giant bubble with the NASDAQ bubble, leading to a housing bubble, leading to the biggest bubble yet due to QE and keeping interest rates too low for too long. Measures like the cyclically-adjusted PE, or Buffet's total market cap to GDP are at levels seem before crisis. Even housing has climbed within 2% of its previous housing bubble highs that led to the last crisis. As the world goes will the US go; especially given the weak growth we've seen in the US?
China, the biggest contributor to world growth, has been slowing and the stock market has recently suffered a bear market where the authorities halted about half the stocks and spent 10% of its GDP on stocks to try and stop the collapse. Will market forces win in the end? Credit Suisse says China has a triple bubble(investment, housing, stocks), and Ackman says China is worse than the US before the last financial crisis. A manufacturing survey just hit a 15 month low. Japan, a large trade partner of China, has just had its debt downgraded to unsustainable by the IMF and says they must act now. The Japanese Yen has fallen through its important trendlines and one of Europe's top rated strategists, Albert Edwards, believes this may also force China to devalue its currency to compete effectively which could further send another deflationary shock to the West.
Emerging markets have also borrowed $4.5 trillion US dollars. Given their faltering economies and the rapidly rising US dollar they will have a much harder time meeting their obligations.
The semiconductor index(SOX) has fallen about 15% since the beginning of June.
PHO has saved for a rainy day, and can compete better with the lower Canadian dollar; but, again, this is a very cyclical business and PHO is dependent upon a few unkown clients. The stock is also relatively cheap subtracting the cash. The problem is risks appear elevated at this time after a good run. Given global debt is higher than the last crisis, how interest rates have been reduced leaving no room for cuts as in previous recessions, and given government debt and deficits leave little room for further stimulus, and given the babyboom has left their peak production and consumption years, many fear what the next downturn will bring. With stocks falling 50% many were wiped out. We've kicked the can down the road and run out of road. The world hasn't saved for a rainy day. A cyclical business dependent upon a few clients could be very vulnerable in the next downturn. The last downturn was the worst since the Great Depression and we spent ourselves trying to escape it leaving little for the next downturn.