| Investment Views (August 16th 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.
Hi everybody, I'm still alive.
The tonsillectomy went o.k. But I'm
still in pain. So I shall
be quite brief.
The Dax 5000 level has held. If Wall Street stablize, then we
could finally see
the long awaited summer rally in Europe. There were lots of positive
indicators
for Europe last week. The consumer confidence is finally rising.
The German
2nd quarter GNP is stronger than expected. Unemployment is finally,
albeit
still quite hesitantly on the decline. With all these positive
news, Europe would
have rallied, if the market participants weren't all worried about
the rising
interest rate and a possible crash on Wall Street. Problem is,
crashes never
come when everybody is prepared and foreseeing them. Also we
doubt
that this year will be a repeat of last year.
The SMI has seen some relative strength lately. There is a rumour
that
Roche GS will be included in the Eurostoxx 50 on the 18th of this month.
Then there was the surprise three way merger between the Algroup, Pechiney
and Alcan of Canada. The SMI was quite oversold anyway.
So it recovered
more than 300 points from its low made on Monday. We shall have
to
see on next Monday whether this recovery can be sustained. If
the market
closed substantially above the 7000 level, then we should move back
to
the higher range trading between 7000-7500 on the SMI.
|
The dollar finally started to correct with a vengence.
After a high of SFr1.5890 the
dollar is now back to the 1.49 level. Now it
is important that the 1.48 level hold. Other-
wise we see the dollar tumbling further downwards.
The dollar traditionally corrects
in the summer and continue its downward movement until
the end of the year.
We have no doubt that this year will not be any different.
The only difference
is the magnitude of the fall. We feel that with
the US economy still strong, the
dollar should stay above the 1.40 level.
The bond market over-reacted as usual. The yields backed up to
6.3% level in the whole hysteria. We doubt that the Fed will raise
rates soon. The bond market is still too unsettled. Latin
American
recovery is still very fragile. American economy is strong but
has
cooled perceptably from the unsustainable growth rates of the
first quarter. Also with the impending Y2K problems right around
the corner, we feel that the Fed will proceed ever so carefully.
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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