| Investment Views (September 13th 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.
The Dax is finally snapping out of its hesitant retreat. The market
advanced
strongly last week closing decisively above 5400. This is very
positive. But
we're also getting overbought. Next week, being the options and
futures
expiration week, could bring some turbulance and correction.
But unless
the US market tanks, the Dax will hold up will.
The Swiss market hit the 7250 level before retreating again. We
expect
next week to be a lot of back and forth movements, until the market
works off some of its overbought readings. It's disappointing,
but the
SMI hasn't managed to breakout to its upper trading range. The
relative
strength of the Swiss market just isn't what it used to be.
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Last week we recommended that our clients buy Zeltia at 14.80.
Zeltia is a
Spanish biotech company. The interesting thing about Zeltia is
that it is
working with Marine plants and animals to find chemicals that will
also enhance
human health. We think it one of the most promising biotech company
in
Europe. The stock is still quite cheap. If internet companies
are selling
for more than 200 PE than we think a company like Zeltia selling at
a PE
ratio of 65 is promising indeed. We would value biotechnological
companies
at least at the same level as the internet companies, if not more,
because
the market could be much larger than internet companies.
The treasury market gained massively after the PPI data. We're
convinced
that the yield is still too high relative to the inflation potential.
The world
economy is still weak. The excessive liquidity is still flowing
into stock
markets and not into the real economy.
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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