| Investment Views (March 15th 1999) |
Dow 10000 is in sight. But 10000 is a big round number.
Therefore we should flirt
just below it several times at least before breaking it. After
all, the market is about
as overvalued as the Nikkei was, before it finally crashed in 1989.
On the other hand
the crash came, when the Bank of Japan decided to prick the bubble.
Therefore
we should not expect a huge correction, unless the Fed signals their
resolve to
raise the interest rates. Thus far we haven't seen any sign of
that. Therefore
we cannot rule out the market going up further. On the other
hand the earnings
picture is not getting any prettier. We still recommend that
investors take some
profits on the way up.
Oscar Lafontaine, the social democratic finance minister of Germany
resigned on
Thursday. On Friday the Dax jump almost 5% in joy. The
shorts were caught
unprepared. We doubt the momentum will be sustained. The
structural problems
in Germany will not disappear overnight with a new finance minister.
The only
positive thing is that the ECB might decide to lower the interest rates
now that
the most outspoken advocate for lower interest rates had resigned.
It would
be high time for the move. Both the German and French economies
are
slowing down rapidly in the first quarter.
The SMI of Switzerland followed most of the Dow's upward movement.
But
the volume is still quite thin. And we're still around 7250 level.
We haven't
broken out on the upside along with Wall Street. The economy
is also slowing
down rapidly so that we shall probably only see .8% growth for the
whole
year. It is therefore understandable that people are quite nervous
about
the kind of earnings we'll get this year. We're still watching
the market
to see whether it will break out with more volume at 7350. On
the downside
7080 should not be broken.
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We watch SAP and Raisio in despair. Raisio increased its profits
by over 30% last year
but its shares are lower than last year. SAP is treading watch
between 400 and 500.
Traders should probably get out of these shares. But for the
very long term, we're
still very positive on both companies.
The dollar has strengthend since mid-January. There are some arguments
in favor
of a strong dollar. The Japanese economy doesn't seem to be able
to recover on its
own. It needs to export out of its mess. Second:
the US is the only major economy
with a government budget surplus. The virtuous cycle has some
time to run. Third:
the European economy is weakening. The ECB will have to cut the
interest rates
after they have demonstrated their political independence for a few
more months.
Otherwise they risk helping the global deflationary spiral to
accelerate. The monetary
policy of the ECB is too tight for Germany and France. Both countries
are slowing
down rapidly. A decisive push to reflate is necessary.
The US treasury bonds have been quite volatile. Yields have risen
to 5.75 before
falling back on the employment data on Friday. There were more
jobs created
than the consensus expectation. But wages have been very tame.
We see the
situation as a confirmation for our long held view that the US unemployment
had
been consistently under reported. The labor market is not as
tight as the official
numbers suggest. Positive as the job creation figures were.
The consumers
in the US are piling on debts faster than their salaries increases.
We must hope
and pray that the ECB will lower the interest rates soon, so that the
US
will no longer be the only consumers sustaining the world trade.
The Euro strengthened to more than 1.10 before falling back to abround
1.09.
We do not see the dollar correcting yet. We also do not see Euros
falling
to 1 to 1 with dollar. We see a rather tight range trading until
the ECB
moves on the interest rates front. In fact, if the ECB were to
lower the
rates, the Euro might even gain some more strength on the news.
But
without the cut in interest rate we'll see continued weakness in Euro.
| *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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