| Investment Views (June 15th 1998) |
Last week's markets are not for the faint of heart: huge one day
losses, weak
advance-decline ratios (the number of stocks that gain vs. the stocks
that
decline in price), individual stock groups getting punished excessively.
Some even view the meager trade volume as a negative. Life as
an active
investor can be hell. Yet our view on the markets has not changed.
In fact,
it is my feeling that the technical conditions on Wall Street have
improved,
even though it's hard to tell, when this sectorial correction will
finally be over.
The first positive thing: we closed above 8800 on the Dow on Friday.
Second, next week is tripple witching (that's when index options and
futures
contracts expire). People usually have to buy and cover their
positions sometime
next week. However, if we break 8700
intraday or 8800 Dow on the close,
we might have another down
leg.
In Europe the correction phase for Germany and France has barely
started. With the fundamentals still very favorable for both
economies, I
wouldn't be surprised if the correction phase will be very sharp and
very short.
The main supporting factor remains the low interest
rates. People have gotten used
to double digit returns from the stock markets, they're still reluctant
to switch to
those meager yields in bonds. Also, nowadays, bonds are
only relatively safe.
Investors in Switzerland probably still remember when they last bought
10 years
bonds at about 4% in the 70's and 80's, both times the yield went up
to about 7%
and they had to sit on these bonds for 10 years! Now with yields
around 3%,
people will think twice, before they take the plunge. So despite
of the Asian crisis,
and an overheating American economy, people are not really selling
stocks.
Our advices is: Sit tight and don't panic!
Go to Index
Our favorite stocks remains SAP, Nokia, Raisio
Group, Ericcson, Cable and Wireless
and Baan. *
|
Raisio Group is based on expectations that Johnson and Johnson will
be able to
popularize its margarine with an additive made from tree pulp that
is supposed
to lower cholestral levels. The efficacy of this margarine seems
to have been
proven. But will people eat it? That is the question.
Go to Index
The dollar strengthens against DM and SFr. The Asian and Russian
crisis are not without
effects. The question is: how high will the dollar go?
I still tend to think that the dollar
will remain in its trading range of last two years: Swiss Francs
: between 1.40 and 1.53;
DM 1.70 and 1.85. All bets are off as to how low the Japanese
Yen will fall. People
no longer look at the trade balance figures. In the markets there
is not only "irrational
exurberance", but also paranoia and panic. Paranoia and panic
also feed on itself.
Unfortunately the Americans will not help the Japanese calm the markets
and build
confidence. The trade-war mentality is apparantly still at work.
The big question
is: will the Japanese commit economical harakiri? (i.e.
pull all their foreign
investment home to "save" their own financial system) We can
only hope that they
will not. Go to Index
The football WM (Americans call it soccer, but for everyone else in
the world it's
football) began last Wednesday. Most traders around the world
are probably
too busy watching the games rather than take positions in the market.
Maybe that's
one reason why the European markets didn't seem to have any support
when
the American markets went down. Happily, the football world
remains in tact.
The world's best football nation, Brazil, still has a wonderful team
with
just the right balance between art and tactics. And they won
at the opening
game against Scotland. Go to Index
| *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! |