| Investment Views (September
24th 1998) Special Update |
Instead of writing my clients
individually I thought I might as well
do a weekly summary of my views
on the markets, the currencies,
the economy, the world, and
life in general.
Markets in General
After listening to Greenspan's testimony last night, I have changed
my mind about the
stock markets. If his Berkeley speech a few weeks ago left it
quite unclear when he
would lower the interest rates, last night's testimony was clearest
that Greenspan will
get: he will recommend lowering the interest rates at the Fed
Open Committee meeting
next Monday. It was also clear that Greenspan understood the
gravity of the situation
in the world financial markets. CNBC's report concerning the
recapitalisation of
the Long Term Capital Corp, a hedge fund, has finally convinced us
that the
Fed understood the problems and will do what it can to help stablize
the
financial system. It seems that the Fed had a hand in arranging
the
recapitalisation of Long Term Capital Management Corp.
13 US banks will each
pay up hundreds of million of dollars to become equity owners of the
positions
that went bad at the Long Term (all together about 3.75 billion
dollars) so that
Long Term will not be forced to liquidate its positions and upset
the markets further. Obviously this is not
free market in its pure form. As we
have stated in this column repeatedly, the world
financial markets cannot
work without tight regulations. We're
heartened by the admittedly
vague acknowledgment of the importance of this
aspect by Greenspan.
We're therefore convinced that this time the
world financial markets have
flirted with precipice and finanlly got the attention
of the regulators. We have
the feeling the ad hoc measures will probably
work this time. For the longer
term the world leaders cannot get around reforming
the international
institutions and regulations.
The conclusion from all this is: The US
stock markets have probably seen
its lows, although it doesn't mean that the markets
won't try to test
the lows at 7300-7400 on the Dow again.
Unless there is a coordinated
interest rate cut, we will probably see a weaker
dollar. When the dollar
is weak, we will see the European stock markets
underperform, but we
won't see further market crashes. Therefore
we recommend selling
the weaker stocks in the portfolio and buy blue
chips, since these
have corrected substantially.
| *The stock prices are provided
for informational puruposes only and not intended for trading
purposes. The opinions expressed in these pages are what they are:
opinions! |
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