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February 1, 2002

No New Tech Bull

By Kathryn M. Welling

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Fred Hickey admires his sons' "New Hampshire granite, rock-solid values" when they offer to pay for their own second hot dogs at a Celtics' game. And the independent analyst and publisher of the High-Tech Strategist wants the prices he pays when buying shares in tech companies to reflect the same. He did go net long in late September for the first time in a long time, tentatively buying a few software stocks after the market reopened. Alas, he could stand to hold them only for 10-15 percent moves, so he barely participated in the rally. And he's anything but ready to buy now. -KMW

The techs have had quite a bounce off their September lows, yet you're still steadfastly bearish, Fred?

I must say, the timing of your call [Thursday, Jan. 10] is pretty good. The just-released Investors Intelligence numbers show the lowest number of bears since 1998, meaning there are fewer than there were at the peak of the mania in 1999 and 2000. That tells you a lot about where we are today.

Doesn't that make sense? We did go through quite a bear market to get to September's lows.

In some stocks, but not all. Unfortunately, there's also been a correction of the correction, so that we are still sitting at extreme valuations, which is a problem. The correction hasn't gone far enough yet, though I know it will. I just have to be patient.

So you're willing to risk being called a perma-bear?

Yes, because the alternative is to buy stupidly at high levels, levels never seen prior to 1999. The longer this goes on, the harder it is for me. No question. I am extremely anxious to go long. But the risk is not being out of this market. The risk is being in this market. I should have stayed longer but I'm still too shaken by how badly people want to be in techs, even after taking two years of pounding. Seeing the Nasdaq down 60 percent didn't seem to change anything. They ran right back into the same stocks they were in at prior peaks, without any regard to valuation. That scares me. So now that the semiconductor market has moved up 70 percent and the Nasdaq is up close to 50 percent, there is no doubt about which side of the fence I have to be on.

Still, this is one heck of a rally.

The good thing about it is that I was out of my shorts and puts in September. I've been waiting for some signs of exhaustion to indicate that the bad news that I know is out there will be considered by investors and that the stocks could go down. But we've seen these rallies in the past go on for longer-and stretch valuations more-than I ever thought possible. But just yesterday I put on small positions in Applied Materials (AMAT) and KLA Tencor (CLAC)-and they weren't longs. I have a few other bearish positions, the biggest, one in IBM, I've been gradually building in the last week.

How can you stay so bearish, six months into a recession, and with interest rates so low-