| Investment Views (June 22nd 1998) |
Tripple witching brought additional volatility this week.
The Dow tanked about two
hundred points on Monday, recovered the total loss by Wednesday, after
the Fed had
intervened to support the yen. But already Thursday, people began
to question whether the intervention will solve the problems of Japan or
those of other Asian countries. By Friday
the market had another attack of anxiety and closed 100 points lower.
Because we broke
the support area on the Dow last week (8800 on the close and 8700 intraday),
we will
probably retest the low of last Monday 8600 on the Dow. If
8600 doesn't hold, then we
might go all the way to 8350-8400
area. The positive thing about Friday's close is the
action on the Nasdaq. Is the high
tech stockmarket correction finally over?
Be careful
though, all market participants are still waiting for the second quarter
earnings figures.
How much will the Asian crisis impact the earnings? The warnings are
piling up. That
makes everyone jumpy. But the CFOs of American companies are
also understandably nervous. After all their companies get sued,
if there is an earnings surprise on the downside. Therefore, it is
probable, we will see a collective sigh of relief rally, when the
earnings
finally come out.
As I have foreseen last week, the German and French markets proved to
be relatively resilient. But people were shaken by the tanking Asian
markets and the reaction on the Wall Street.
There are no new buying. The Swiss market proved to be especially
weak. While Dax and CAC made new highs recently, the SMI refused
to break out of the trading range between
7000 and 7750. European stocks look very pricy based on trailing
earnings. But nobody
can really quantify the benefits of the euro and the restructuring
companies are going through preparing for the euro. I would remain
fully invested in Europe.
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Our favorite stocks remains SAP, Nokia, Raisio
Group, Ericcson, Cable and Wireless
and Baan. And we shall add Bachem to this list.*
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Bachem came out on an IPO on Thursday in Switzerland. It's a very
unique company. It specializes in supplying Biotech companies specialty
chemicals. In the present market environment in Switzerland,
it can be dangerous to be invested in IPO's though. The IPO's
issue price is determined by a market building process.
Since the number of stocks coming
to the market is relatively small, the issue price can get quite pricy.
Most IPOs do not trade substantially above the issue price. In fact
some have trouble maintaining the issue price.
Straumann and Bachem are among the rare issues that still trade above
the issue price. Straumann is slowing settling towards its original
issue price. Dental implants don't seem
to be as sexy as biotech!
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On Wednesday the Fed finally intervened to support the yen. The
yen strengthened from
Y143 to Y136 almost immediately. Ouch! In London, lot of
traders missed their lunch and
probably diminished their bonus in a big way. Almost immediately traders
started to question whether the intervention will be successful in turning
around the Yen, if the Japanese economy refuses to recover as long as the
banking crisis in Japan drags on. The market purists insist
that intervention will never work. What they mean is, of course,
that the governments should never intervene and the markets are always
right. That seems to me a cop out.
Why should human beings let some mechanical force, which often is a result
of fear and greed, panic and paranoia, determine our economic well being?
In fact, if we let the yen crisis drag on, the rest
of Asia might implode. Russia and other emerging markets will
then also be endangered. We risk a global financial markets meltdown.
To those who argue that intervention never works,
I would reply: Never bet against the Fed!
The Fed is not just any old central bank. It
is the
de facto world central bank. The
Fed doesn't have to spend money to intervene. The Fed
can mint money! In fact, I think the strong
dollar is causing Asia more problems than
a weak yen. The Fed need to inject
liquidity into the world market to reflate the world
economy; or at least to replace part of
the wealth destroyed in the Asian crisis.
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The Football World Cup 98 is a mirror of the stock markets. Only
the established, mature
football nations are successful. Nigeria is the only exception.
Their players, however,
can get quite nervous and fumble in the defense. I doubt they
will reach the finals. My
favorite team, Brasil, still performs remarkably well. France
cuts a better figure up until
now. But they're lucky in that they had to play against some
of the weakest teams up until
now. But then, luck is always a factor in life. The Germans and Italiens
put in very solid performance. I have no doubt that the finals will
see a battle of the titians.
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| *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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