| Investment Views (March 29th1999) |
The Dow's strength is amazing. Despite of the war in Serbia, high
valuation,
and Rubin's expected resignation, the Dow only tanked on Wednesday,
the day
before the bombing began. The Dow did, however dip below 9800.
Because
it did correct around 5% intraday, we probably won't see another correction
until it tested 10000 again. Therefore we're reasonably optimistic
for the next
few days, even though more and more analysts point out that the Dow
is massively overvalued. But as I have repeatedly emphasized
in this column,
no one really knowwhat the fair value of a stock. It is
a function of what
investor's are willing to pay and liquidity. At the moment we
still do not have
a liquidity crunch in the world financial market. We therefore
will not pretend that
we know when the market will reach its absolute highs. But we
do agree
with the majority of people that 10000 is an important psychological
mark.
We should not be able to surpass this level easily. Therefore
we had
advised our investors to take some profits and wait for the market
to
correct meaningfully.
The German market has not been able to sustain its advance above 5100
level
on the Dax. Technically the market has again turned to the weak
side. We
shall have to wait and see if the support level at around 4750 will
hold. Otherwise
we shall see further weakness in the Dax.
The Swiss market has been one of the weakest markets in Europe.
The market
never managed to rise above the 7350 level. Now it has returned
to test the 6900
level. So far the support around 6950 has held. The question
is for how long?
We're afraid that the market might not recover significantly this year.
The
growing strength in the Far Eastern markets seems to encourage investors
to
take whatever profits they still have in Europe and return to the Far
East. We
have no idea how long this trend will go on. But we're not too
optimistic that
the Swiss Market will make new highs any time soon. In the very
short term
we could still see the market testing 7350 though.
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SAP issued a profits warning on Friday. The news seems to be in
the market
already, because the share prices did not budge. We recommend
buying Cap Gemini
and selling SAP for those investors who still have profits in SAP.
Cap Gemini's sales
is picking up, whereas SAP's sales are slowing. But for very
long term investors, SAP
is a must in every portfolio.
VEBA also reported disappointing earnings for 1998. The start
up costs for the
telecommunications is higher than expected. The energy earnings
have been
affected by the low crude oil price. VEBA is still an excellant
long term holding with a
very solid asset base.
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 Kosovo war finally managed to push the dollar higher. On Friday
the dollar
closed above SFr.1.48 for the first time since about a year ago.
We see the
dollar strengthening towards 1.50, before falling back a bit.
| *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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