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[Ulisses Pereira]

"Goldman's Semi Cut Is About the Fed"

By James J. Cramer
RealMoney Columnist
02/03/2004 09:50 AM EST


"The much-telegraphed Goldman Sachs downgrade of semiconductor equipment stocks seems to be part of a pattern that makes sense only if you believe the Fed is about to ruin this market with four 50-basis-point hikes by election time.

I say this because when you consider that Goldman also downgraded General Motors (GM:NYSE - commentary - research) last week, you see that what the firm is saying is "Get defensive." Of course, this is hilarious, given that Goldman's economists are saying -- or perhaps more accurately, were saying -- that there were no tightenings imminent.


I can't ask for research to be consistent. Morgan Stanley had great analysts for years who were wildly inconsistent with each other.

And I can't argue too much with Gary Lapidus, who downgraded GM. He was the only one who caught the $43 to $50 and change move. I think there is more to it, though, because I believe that GM will benefit from health care issues, pension issues and a benign Fed. I would buy this stock on a pullback.

But the semiconductor equipment stock downgrade doesn't make much sense to me. For the longest time, I didn't care for these stocks. I have always thought them to be more levered to the broad economic expansion than to, say, the fortunes of Intel (INTC:Nasdaq - commentary - research). Suddenly, that expansion's looking pretty darned good, and that's when he downgrades?

Remember that in 1994, those who feared the Fed and sold cyclicals got it wrong. And 1994 was a horror show. It is true that those who sold cyclicals in 1999 and 2000 got it right, but I think that the inflation the Fed was fighting then was stock market inflation. Here I think the Fed is just trying to be sure that we have some room again to cut now that things are better.

Of course, there is one way that Goldman's analysts could be right: if the Fed is furious at government spending. Anyone who has read Ron Suskind's book on Paul O'Neill, The Price of Loyalty -- hm, maybe that's what those Goldman folks did -- would have to argue that Alan Greenspan might just raise to instill discipline at the federal spending level. I don't think that's the case, but it is out there.

P.S. Some of you have noted that the semiconductor equipment stocks were trading down in advance of the downgrade. I think that the analyst has been quite vocal of late about his worries about the group, so it is reasonable to have thought that he would downgrade and that any smart hedge fund could have gamed this correctly. Illegal? Nope. Smart? Yes. "

(in www.realmoney.com)