| Investment Views (September 27th 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 followed the Dow down. The key 5300 level was broken and
the
market seems on its way to test the 5000 support level on the Dax.
Everything
really depends on Wall Street. If the Dow rebounds this week,
Dax will probably
be doing better too. The level to watch is 5300.
Paris followed the US in this correction confirming the saying that
when Wall
Street sneezes, the rest of the world catches cold.
The SMI also retreated last week. But for the first time in a
long time, the SMI
did not retreat more than Wall Street. Indeed it has held up
relatively well.
The relative strength can be a sign that the worst is over for the
Swiss
market. The downside is perhaps 6800 maximum 6500. The
level to watch
is 7000, 7280.
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Sonera has developed a standard for safe wireless data transfer.
The market
is quite positive about this new technology. Therefore Sonera
shares remain
high, while all the other tech stocks corrected. We recommend
adding to
Sonera positions during weakness.
It is rumored that Nokia is thinking about taking over Ericsson.
That would
be very positive for both companies. We recommend adding to the
positions
during weakness.
The US Treasury bonds have been trading in a narrow range slightly above
the 6% level. It is rumored that the Bank of Japan will indeed
bow to
American pressure and will perhaps do unsterialized interventions in
the
currency market to support the dollar. That will be a positive
for the
world bond and stock markets.
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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