| Investment Views (April 26th 1999) |
The German market remains in its pattern of being extremely optimistic
one
day and excessively pessimistic the next. We do not see major
correction
unless the Dax breaks below 5000. We do not see any major bull
trend
either. The global investors are still adjusting their portfolios
out of Europe and
into Asia.
The SMI barely budged. It seemed quite bearish that it didn't
manage to
close decisively above 7350-7400. But it also didn't manage to
close
below 7000 either. Therefore we still see a market moving sideways.
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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, 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.
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. It finally managed to close above SFr.
1.50 We see the
dollar moving up to test the 1.54-1.55 level.
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! |
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