Index

On Friday the Asian markets all rose strongly.  It seems that the investors are
returning in a very big way.  We can only hope that this time, the Asian
governments have learned from the last onslaught and will not let the markets
get out of hand.  Capital inflows should be used carefully to build up reserves
and finance the necessary social and economic structural reforms.  The workers
of Asia need more of a social net to fall back on to weather another downturn
like the last one.  We can only point out with pride that we have recommended
that investors get back into Asia when the Hong Kong government started to
intervene in the stock markets.  We said at that time, that we feel the worst
of the Asian crisis was over then.  We were correct.

Wall Street has acted quite strangely these last weeks.  Dow has seem
higher high almost daily.  The S&P 500 has seen a quite sizable correction.
The negative divergence is almost too noticeable.  On the other hand
the market started to widen out last week.  The cyclicals are coming
back and the general market has been performing better.  We're
experiencing a huge rolling correction with the Dow barely budging. But we
do expect the Dow to correct at some point too.  But by then the
correction in the S&P will probably be over already or at least be far less severe.
Conclusion: we do not see a mini-crash scenario. We expect a 4-7% correction on
the Dow and maybe a 10% correction on the S&P.  10000 level should offer
good support on the Dow and 1300 on the S&P.

The Dax has exhibited some strength last week by staying above 5100.
But evidently people are reducing their European exposure and increasing
their Asian positions; especially the Japanese.  As we have written last
week, we don't quite understand this new europessimism.  Europe is
recovering.  Asia is recovering.  But who sells more to Asia?  Europe!
However once institutions start shifting their portfolio then the movement
can be quite extreme.  Therefore we suggest buying European blue
chips on extreme weakness.  After all the dollar is strong and the
European big firms are very international.  The next few quarters should
be quite positive for the Europeans.

The SMI is especially weak among the European markets, because it's
full of defensive stocks (for example: Nestle, Novartis, Roche) that perform
well in economically weak environment.  Since now everyone is piling into
cyclicals again, it's no wonder that the SMI remains weak.  As we had expected
last week, the SMI did not close above 7400 successfully.  By the end of week
we're back in the trading range that we had been so long 6900-7350.  We
expect the market to test the 7000 level next week.  But because we believe
that the general economic climate is improving, we do not expect another
mini-crash yet.  Therefore we expect the SMI testing the upper range soon
in May.
 

Go to Index
 

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, since the two are
cooperating to propagate the new CDMA mobile telephone standard. Therefore we
recommend investors adding to their Ericsson holding at any weakness.

Go to Index
 

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 remains strong.  But it still hasn't manage to break out above SFR. 1.50
decisively.  But we still do not see a meaningful dollar correction as yet.
 
 

Go to Index
 

The internet will transform our world in a massive way.  I think it is time to
begin and do some thinking on what kind of change it will bring and see if
we can draw some conclusions that are relevant to our investment decisions.

First, as we have opined in this column we do not believe many of the today
sky high internet stocks will eventually make a lot of money.  The internet
is such a competitive forum.  The pricing pressure is so great so that only
providers with Brandname recognition and meaningful contents will be able
to have some pricing power.  We must remember what the internet eventually
will bring is absolute international competition.  Price competition will be fierce.
Middle men will be eliminated.  Therefore we see many service sector jobs
will be eliminated.  For example, we see this trend in the financial sector already.
More and more people are trading stocks on line.  With internet brokerage
charging less than $10 per trade, we should see brokers and financial advisors
being eliminated at major brokerages in a big way soon.  The same should
happen in other tradable items.  For example, there will be less need for
retail stores for items that one can buy easily on the internet.  Of course
there will be branches of the economy that will profit.  For example:
the telecoms, the Federal Expresses, and the computer software industries.
But the question is: Will the general economy really profit or will the general
deflationary trend continue and become worse and worse?  Without pricing
power and with lots of jobs being eliminated and salaries on hold, we see
the world economies trending toward deflation, even if it continues to grow.
That means real estates and gold will become even less appealing.  If we
believe our argumentation, we would not invest in the "internet" stocks
themselves but in the companies that do have contents and pricing power
as well as companies that will offer services to the internet providers
and users: ie.  companies such as Sony, Time Warner, Dow Jones, and Federal Express.
 
 

*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!

 

LINKS:
 

Selected Business News

Archive