| Investment Views (May 24th 1999) |
Happy Pfingsten! Pfingsten is one of the most beautiful garden
time. The day lilies
and sword lilies are in full bloom. And the peonies start their
fireworks. And it's
also a great time for the wild orchids. Therefore it's a time
to take long walks
and enjoy nature.
Instead of writing my clients
individually I thought I might as well
do a weekly summary of my views
on the markets, the currencies,
the economy, the world, and
life in general.
The Federal Reserve did not raise the interest rates but decided to
adopt a
tightening bias. Ever since the stock markets of the world have
breathed
a sigh of relief. The markets sold off in the US mildly.
But the European
markets recovered slightly. All in all, it was a rather dull
week. We
saw the S&P testing the 1320 twice and holding. But the upside
seemed
to be limited too at the present. Fridays options expiration
day could have
been a factor. Next few weeks will be important to see whether
the
Dow will correct in earnest. If the S&P 1320 does not hold
then we
could see a Dow correction down to the 10000 level. But the more
likely scenerio seems to me to be range trading. 1320-1360 on
the
S&P. 1380-1390 build a strong resistence level.
The Dax 5000 level held. We therefore expect the market to continue
to
trade in a range, unless the situation in New York worsen. The
same
can be said of the SMI. The 7000 level held. We have the
market
back to above the 7100 level. We should have the market backing
and filling again trying to close above 7240 level. Seasonally
the
2nd half of May and June are usually positive. The earnings and
dividends are out of the way. The market usually recovers a bit.
But
the upside is full of resistence. Unless we close decisively
above 7500
on the SMI, we seem to be stuck in a range. The longer this kind
of range trading goes on the more explosive will be the next
move of the market. It is a dangerous market for traders.
|
Ever since SAP held a conference for investors and clients and announced
their plan to create an open SAP internet site. The market has
welcomed
the news with great advances. More than 30% within a few weeks.
As we
have emphasized before, we like SAP as an integrated software application
company. We believe that SAP will benefit a great deal as they
help their
clients to get on the net.
Raisio finally received approval for marketing its margarine in the
States
from the FDA. The stock jumped from 9 Euros to 12 within days.
Towards the weekend profit-taking set in. But we would hold on
to
the stock. We would wait and see how the reception in the US
will be.
As we had expected, the dollar's support was strong around 1.4880.
Now the
dollar is above 1.50 again. We expect further rise in dollar
to test the 1.54
level before it will retreat in late sommer.
As we have repeatedly emphasized, we do not expect the Fed to raise
the
interest rates. The deflationary trend is still stronger in the
world economy than
the inflationary one. The American labor market is much less
tight than
the statistics suggest. Technical innovations make it possible
for a lot of
companies to cut personnel. We feel that the American service
industries
are still overstaffed. Therefore we do not see wage-pressures
in sight.
Plus the world bond markets are overzealous in their inflation-watch.
There's
really no chance for inflation to get out of hand. We expect
therefore
Fed to sit tight, albeit with a slightly tighter bias.
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. We would also recommend the stocks of Corsair (CAIR),
Qualcomm, Ericsson, Nokia, the equipment and software provider for
the CDMA,
the next wireless telephony standard as well as stocks of telephone
companies
like Sonera, ATT, Worldcom-MCI, Colt Communications, and Swisscom.
We also
see internet companies needing ever more sophisticated software.
Therefore
we're quite optimistic about the long term future of the likes of IBM,
Oracle,
SAP and Cap Gemini.
| *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: