Do Intel's numbers spell recovery?

The chip giant's earnings sparked a rally, but in truth, if tech has turned around, the company will be the last to know. Also: The 'next time down' is a job-crushing reality.

Intel (INTC, news, msgs) ignited an intergalactic stock fest Tuesday night after winning at beat the number. That its earnings victory was pretty much an open secret on Wall Street before the announcement -- though the extent of smoke blowing and arm waving on the accompanying conference call wasn't -- didn't stop folks from celebrating as if it were one of the greatest achievements of the past couple of decades.

In Santa Clara, typically sunny and clueless

Aside from a bigger-than-expected pop in revenue (due to an inventory snapback) and thus a rise in non-GAAP earnings, Intel had nothing that spectacular to report. (For a look at the company's numbers, click here.)

And, except for a few chip vendors, its success doesn't really imply anything for anyone else, including Dell (DELL, news, msgs) or Sun Microsystems (JAVA, news, msgs), both of which pre-announced quarterly results 48 hours before Intel's report.

Why do I say that? Because, as I have noted repeatedly, given Intel's position at the bottom of the technology food chain, it's routinely fooled about what will happen next. That is why Intel has pre-announced so regularly over the past decade, updating off-target forecasts just ahead of its earnings reports.

Why I prefer Microsoft

In a note of irony: While folks were busily extrapolating Intel as good for the entire tech sector last Wednesday, the chip maker's stock was initially up twice as much as Microsoft's (MSFT, news, msgs), percentage-wise. Although the two businesses aren't exactly the same, they are similar. And Microsoft's business is far, far superior.

That's why tech bulls' rabidity for hardware in general versus Microsoft strikes me as rather mindless, especially when one takes valuation into account, as all investors should. (Microsoft publishes MSN Money.)

Putting money behind that view, as I noted in my daily column on FleckensteinCapital.com, last Monday I added to my Microsoft position when the share price backed off toward $22. I felt that Microsoft had too much promise versus its valuation to have kept my position at its prior modest level.

The jobs equation

Now for a wide-angled turn, we'll switch topics from the playground of speculators to the plight of unemployed Americans. In the broken-record department, the biggest problem besetting the economy is our inability to create jobs, due to having spent the past decade and a half trying to speculate our way to prosperity. (Read last week's "Why creating jobs is so hard.")

The problem was laid out succinctly by New York Times columnist Bob Herbert on July 10 in a terrific (but downbeat) article titled "The human equation":

"The crisis staring America in its face and threatening to bring it to its knees is unemployment. Joblessness. Why it is taking so long -- seemingly forever -- for our government officials to recognize the scope of this crisis and confront it directly is beyond me."

Whistle while you work; the economy will hum along

A couple of Herbert's suggestions seem reasonable: "My choice would be a 'Rebuild America' campaign that would put men and women to work repairing, maintaining, designing and rebuilding the nation's infrastructure in the broadest sense -- everything from roads and schools and the electrical power grid to innovative environmental initiatives and a sparkling new mass transportation network, including high-speed rail systems."

His sobering conclusion: "The joblessness the nation is experiencing is crushing any hope of a real economic recovery. With so many Americans maxed out on their credit cards and with the value of their homes deep in the tank, the only money available to spend in most cases is from paychecks. The best and the brightest in Washington may have a theory about how to get the economy booming without dealing with the employment crisis, but I'd like to see that theory work in the real world."

The 'next time down' is here

Herbert has hit the nail on the head. The economic crisis we are experiencing is what I used to refer to as "the next time down." It's here, and it's striking with brute force.

So, how can these two phenomena -- a wild stock market and a poor economy -- exist at once? Deficit spending and quantitative easing, aka money printing. As Jim Grant explains in "China channels 'Monkeybrains'" in the current issue of Grant's Interest Rate Observer (subscription required):

"Too much debt got us into this mess, and too much debt will see us out of it. Socialize the risk of a new cycle of open-throttle lending and cling to the monetary system that assures a repeat crisis. Such, approximately, is the global policy-making consensus. Central bankers and finance ministers have achieved an uncommon meeting of the minds. The cure for what ails us is the hair of the dog that bit us, they prescribe, though not exactly those words. "