| Investment Views (March 13th 2000) |
As I have pointed out long time ago, the e-retailers have shown themselves
to be unable
to make a profit. The amazons of this world have no pricing power.
Indeed we can regard
the e-retailers as the modern day Robin Hoods. Robbing the rich
(shareholders) to subsidize
the middle class consumers. But there are still strong techs out there:
the B2B internet stocks,
the software and net infra-structure stocks. Although no one is making
money on the internet,
it is still paramount for all companies to present themselves on the
net, if only to defend their brand
image. So we should see continued investment by companies of all sizes
on e-commerce software,
and internet infra-structures. And companies will have to get ready
for the next wireless phone
internet presence. Therefore we wouldn't sell off all tech stocks indiscriminately.
.
The Dax has been very resilient indeed. Although the Dow has retreated
more than 15%
intraday, the Dax has closed quite close to the 8000 level. The
Dax has stayed within the
upward trend channel. We're cautiously optimistic.
The CAC has been even more positive than the Dax last week. Cap
Gemini has
raced from higher highs to higher highs. The French economy remains
on the
growth track. The stock market should continue to do well.
As we had expected, the Swiss Market remained weak. Indeed it
has become one of
the weakest in Europe. The premiums for calls have decreased
rapidly. The market
is definitely becoming very pessimistic. Perhaps long term investors
should begin to
nibble. The levels to watch:6830. If the SMI does not break
that level to the down-
side, we expect a bounce to maybe the 7150 level.
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Cap Gemini announced a cooperation pact with Cisco Systems. Its
shares shot up and
haven't looked back since. Cap Gemini is doing all the right
things to ensure that it will
become one of the leading BtoB e-commerce software players. Buy
more on dips!
SAP announced a 3 for 1 stock split. The German market reacted
positively, but its
shares didn't budge on Wall Street. SAP is becoming a major force
in the B to B
e-commerce area. Its shares are still "undervalued" compared
to its American
B to B e-commerce shares.
When talking about the asset bubble, analysts and jounalists tend to
forget about
the volatility of the bond , currency and real estates markets in the
last decades which cause
investors to be less than enthusiastic about those instruments.
Stocks have shown themselves to be a better
investment for the long term. As this insight begin to sink in
the psyche of the world baby boomers,
we should see greater allocation to equities than ever in history by
the European and Japanese investors.
That trend will cushion the blow of the rising interest rates in the
US.
The internet will transform our world in a massive way. I think
it is time to
begin and do some thinking on what kind of change it will bring and
see if
we can draw some conclusions that are relevant to our investment decisions.
First, as we have opined in this column we do not believe many of the
today
sky high internet stocks will eventually make a lot of money.
The internet
is such a competitive forum. The pricing pressure is so great
so that only
providers with brand name recognition and meaningful contents will
be able
to have some pricing power. We must remember what the internet
eventually
will bring is absolute international competition. Price competition
will be fierce.
Middle men will be eliminated. Therefore we see many service
sector jobs
will be eliminated. For example, we see this trend in the financial
sector already.
More and more people are trading stocks on line. With internet
brokerage
charging less than $10 per trade, we should see brokers and financial
advisors
being eliminated at major brokerages in a big way soon. The same
should
happen in other tradable items. For example, there will be less
need for
retail stores for items that one can buy easily on the internet.
Of course
there will be branches of the economy that will profit. For example:
the telecoms, the Federal Expresses, and the computer software industries.
But the question is: Will the general economy really profit or will
the general
deflationary trend continue and become worse and worse? Without
pricing
power and with lots of jobs being eliminated and salaries on hold,
we see
the world economies trending toward deflation, even if it continues
to grow.
That means real estates and gold will become even less appealing.
If we
believe our argumentation, we would not invest in the "internet" stocks
themselves but in the companies that do have contents and pricing power
as well as companies that will offer services to the internet providers
and users: ie. companies such as Sony, Time Warner, Dow Jones,
and UPS. We would also recommend the stocks of Corsair (CAIR),Qualcomm,
Ericsson, Nokia, Epcos the equipment and software provider for
the CDMA,
the next wireless telephony standard as well as stocks of telephone
companies
like Sonera, ATT, Worldcom-MCI, Colt Communications, and Swisscom.
We also
see internet companies needing ever more sophisticated software.
Therefore
we're quite optimistic about the long term future of the likes of IBM,
Oracle,
SAP, Cap Gemini,Broadvision and i2 technologies.
| *The stock prices are provided for informational purposes only and not intended for trading purposes. The opinions expressed in these pages are what they are: opinions! |