What do you do when you learn about something you already know.
I am seeing a lot of freak out this morning from people about Tuesday night's conference calls by chipmakers Texas Instruments Inc. (TXN) and STMicroelectronics N.V. (STM) , both of which said business is slowing, and I am trying to figure out who could be surprised by that so-called news. Who didn't know that things are slowing, which is the sum total of the forecasts of both companies?
And then it hit me. You know who doesn't know it? Who doesn't get it? The happy-talking Fed governors and presidents and voters and non-voters who keep talking about the strengthening economy. The policy makers are totally out of sync with what these two building-block semiconductor companies are saying about the last month of business.
Those who believe in the strong growth thesis must be shaking if they listen to these calls. But the issue, of course, is that they don't listen to them, nor do they listen to the calls involving the slowing growth in the paper and plastics businesses. They also don't listen to any statements from the auto and housing companies, including comments made during Tuesday's call by PulteGroup Inc. (PHM) , which, remember, only had 1% growth in orders.
They just look at the aggregate hiring data and they are worried, concerned, freaking out about full employment and what it will mean about the future for inflation. Yet that data aren't nearly as good a judge of the future as the calls were Tuesday night.
I understand the disconnect because the supply chain of information is a difficult one for these complacent business people and academics in the Fed. It's even hard to comprehend for the research directors who are similarly sanguine. And it is impossible for the spoon-fed media people to do anything but sway away the negatives if they can even see them to swat.
The top-down people would never dirty their hands with the actual facts of a Texas Instruments call or an STMicro call. They have probably never even heard of the latter company, even though it has about $10 billion in revenue.
They are not going to readjust their judgment that things are robust out there based on the declines in semiconductors that appear in pretty much every electronic device, including those that are part of the Internet of things.
Neither the top-down people nor the Fed heads are in denial. They just keep looking at employment and they keep saying things are great. They just want to ignore negative data points because they don't fit with the "four hikes" thesis.
The problem is the facts don't add up to that story. If you did dirty your hands you would hear from Texas Instruments that industrial demand slowed pretty much across the board recently with personal electronics and autos getting particular shout-outs for weakness. "Most end markets have slowed," Texas Instruments CFO Rafael Lizardi said after repeated questions from analysts to get more granular. You couldn't beat any real data out of these guys. All they wanted to talk about was their capital deployment and "the facts" as they called them.
But the call left you with a taste that they are going to need to use a lot of their $18 billion repurchase monies if they want to stem today's decline for this $97 billion market cap company.
The happy people -- my new name for them -- also don't know that STMicro said China has slowed across the board and demand has truly diminished in the People's Republic of China, although, again, that's what the PRC's stock market has been saying of late.
However, the decline at these two companies seems to have caught even them by surprise. Just last month Texas Instruments put through a 24% increase in its dividend. That's a major statement of strength. Tuesday night's call was a major statement of weakness. Business must have just gotten bad or why would you put through such a boost? It doesn't fit.
Now here's the crux of what is happening: If you have listened to any of the industrial calls so far this earnings season, what you would have heard is that things have indeed slowed in many parts of the economy, not just autos or housing anymore. So, none of this "news" from Texas Instruments or STMicro is news at all to those who have been listening to the calls. That's what's been driving the market down, for heaven's sake.
The only thing we are waiting for is the happy-talk people to come to grips with what is happening. We need them to recognize that the declines we are seeing in the chips fit with the declines we are learning about in the end markets the chips go into.
Sadly, it is very much like 2007, where the Fed didn't see the housing issues as they were unfolding. They kept raising and raising and raising without being on the equivalent of the Texas Instrument and STMicro calls back then.
Now, there is a new wrinkle: You have President Trump blaming the Fed when a lot of the weakness seems to be caused by uncertainty revolving around the tariffs. In other words, the president is now helping to cause a slowdown because of the economic war with China and slowing in Europe and the emerging markets, and he wasn't counting on a vigilant Fed working against him just when the bad news hit.
Make no mistake, it is hitting. But also don't make a second mistake: The stocks are reflecting it.
So are the banks. So are the bonds. So is the price of oil. All of the real economic totems are pointing down.
The only thing they aren't reflecting is the happy talk from the Fed, the acolytes in the media and the complacent research directors. When you start hearing the "news" from those camps, when they start blinking from the sharp economic reality sticks in their eyes, then we will put in a real bottom.
I'm betting these camps can't be oblivious for too long. But so far that has been a real bad bet to make.
