| Investment Views (September 6th 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 expect the market to go back to about 10800 again,
before trying to
rally again. After all, the earnings are expected
to be better next two quarters.
Indeed the market reacted exactly as we expected. After correcting
to a low around 10750, the Dow recovered back above 11000! The
employment
numbers released on Friday has been interpreted as a sign that the
economy
is indeed slowing down a bit and the bet is that the Fed will wait
and see
in October instead of raising the interest rates again. Thus
we expect the
the Dow to test its highs again and may even make a new high, although
we
still think the upside is limited. The Dow will probably hit
11500 before
correcting again. We are still convinced that the Fed's interest
rates
threats will continue. But that they will move very gingerly,
because
as I have made it very clear last week:
Pricking the bubble is notoriously difficult.
I rather doubt that the Fed will
seriously consider measures to that effect.
I think Greenspans comments
are equivalents of verbal interventions on the currency
markets. We will
have to see whether the market players will listen
to him and whether the
Fed will really take action to emphasize their intentions.
With so many people's IRA and retirement savings in the stock market,
the Fed can't but be very careful, before they would do anything to
wipe out
everybody's pension funds. And with so many baby boomers finally
coming to an age with money to invest, we do expect the demographics
alone to give the market some good support.
The Dax has corrected down to about 5200 before recovering again.
At the
moment the Dax is not as exciting as the CAC. The French companies
in
retail, banking, insurance, pharma, utilities are all restructuring
with a vengence.
There has been a steady stream of mergers and takeover battles.
That
attracts the attention of the international investors. Although
the Germans
are also restructuring, somehow the action is not as exciting as those
in
Paris. Perhaps because the German companies tend to be acquirers
rather
than being acquired.
The SMI also rocketed on Friday. The support level 6950 has held.
On Friday
the upwards move wiped out almost a whole week of correction.
So we expect
the SMI to test the 7250-7280 level. Indeed we might even see
7500 until the
end of the month.
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After the Swisscom fell below the 500 level, we decide to take it off
of our
recommended list. Although we believe that the Swisscom has a
lot of hidden
assets, but with the federal government being the majority owner, we
do
not believe that the management will be able to dispose of them as
it wishes.
The treasuries sank last week to a yield of about 6.2% before the Friday
employment data led to a massive bond market recovery. We still
think
that the yield is too high relative to the inflationary pressure and
the
world-wide production overcapacity. But the market will remain
nervous
as long as the US economy remains so strong.
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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