| Investment Views (June 7th 1999) |
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.
We wrote last week:
The US markets finanlly got their 4-7% correction that
we had been looking
for. The Dow corrected more than 6% intraday and
the S&P slightly more
than 7% while the Nasdaq had seen a correction of more
than 10%. In our
opinion the market has become oversold, we should see
some rebound.
But we see a second and maybe even a third testing of
the lows made in
this correction until the end of June. The most
likely scenerio is range trading
until the interest rates situation has become clearer.
We have indeed seen a second low made last week and finally on
Friday the market started to recover. We have no doubt that we
might test the 11000 on the Dow again, but we do not see higher highs
made: i. e. we still see some sort of range trading with
the
averages trending ever so slightly lower.
The Dax finally broke the 5000 level. But the selling abated after
a while. The Dax roared right back above 5000, on Thursday, when
it appeared that peace in Kosovo is a distinct possibility. We
see
the Dax stuck in its trading range 5000-5400.
The SMI recovered strongly from the 6665 level. On Friday it even
closed above 7100 level. We have the SMI firmly back in its trading
range. 6850-7500.
|
Ericsson is finally breaking out of its very narrow trading range.
It is strange how
much stronger Qualcom is trading, even though Ericsson will be splitting
the licencing
fees of the next generation wireless telephony with Qualcom.
Since Ericsson has
also bought Qualcom's manufacturing facilities, it seems to me that
Ericsson would
earn more than Qualcom. But the market still prefers Qualcom.
We must admit that we have difficulties understanding the analysts on
CNBC.
They seem to think that a weak Euro is such a tragedy. But did
the Americans
ever worry about a weak dollar? They're happy that a weak dollar
makes
American exporters more competitive. Now the Europeans should
be happy that
the Euro is not trading at a stratespheric level. After the Plaza
agreements,
the Americans and the markets have forced the Japanese and the Europeans
to upvalue their currencies at an breakneck pace. No wonder the
Japanese
and Europeans have problems adjusting to the new levels of their currencies.
Why is the American economy doing so well? Part of it is because
of the weak
dollar, stupid. The real economic adjustments take time.
Re-structuring, moving
manufacturing abroad, firing and hiring take time. In the very
long term, we still
think that Euro will be strong. But the momentary adjustments
will take some
time to work out.
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! |
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