| Investment Views (April 8th 1999) |
Happy Easter everyone. I had a wonderful time wine-tasting in
Burgundy.
We went to stay in the town of Beaune, the wine capitol of Burgundy.
It has a wonderful medieval old town. The Hospice is one of the
most
beautiful medieval building I have ever seen. The wines of 1996
are of
course wonderful. The prices are still affordable in the smaller
wineries. But the grand crus are slowly reaching stratespheric
levels.
I love burgundies, but for everyday consumption Spanish wines have
become a much better buy.
During the Easter holidays everybody got some rest and the beautiful
weather seemed to have put everyone in a good mood. The dow
finally managed to close above 10000 again. How high can the
dow
go? No one knows for sure. The valuation is high.
But the economy
is strong and there is still no sign of labor market tightness. And
liquidity
is still plentifull Therefore sky is still the limit for the
stock markets;
especially for internet stocks. Technically the market doesn't
look all
that rosy. The breadth is narrow and negative divergences are
beginng
to show. Our guess is that the dow may see 10300 before a more
major correction occurs.
The dax is still stuck in a trading range. Recently we heard analysts
recommending on CNBC that people sell Europe and buy Asia. We
find
the recommendation puzzling. Why not sell US and buy Europe and
Asia? If the ECB does finally start to lower the interest rates,
we
do not see European economy falling off a cliff. The US economy
on the other hand might not have as much growth potentials as
people think. (Especially the profit growth picture is rather cloudy
for US companies.) In Europe the consolidation and restructuring
in different industries has barely begun. We're convinced the
Euro-
party is not over yet!
The potentials for the Swiss market is more limited. The fusions
and
mergers have mostly been done. Now the Swiss companies must
focus on the nitty gritty of inhancing profits again. Perhaps
that is
the reason why the SMI hasn't been able to break out of its trading
range between 6950 and 7350. We will need to see the market
closing decisively above 7350 before we will believe that the up
trend is still in tact.
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Ever since Qualcom and Ericsson settled their lawsuit, Qualcom's stock
has almost
doubled. Ericsson's stock has barely budged. We find it
strange that people are
willing to buy Qualcom at a PE around 85 while Ericsson slumbers at
around
PE 30. After all the patent dispute had only occured in the US.
For the rest
of the world Ericssons patent was not in dispute and Ericsson's marketing
savvy should not be overlooked. The future of the new mobile
telecommunication
standard should be just as bright for Ericsson as for Qualcom. Therefore
we recommend
investors adding to their Ericsson holding at any weakness.
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 dollar did not manage to go decisively above SFr. 1.49. We
're back at around
SFr. 1.47-1.48 level. We do not see this pull back as fatal yet.
But we should
be leary about going long dollar at this level.
| *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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