· Stocks
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Investment Views (March 6th 2000) |
The Dow recovered nicely after plunging below the 9800 level last week.
We closed
the week above the 10350 level again.
We find the market
actions on
Friday rather positive. The
breadth is quite good and the market
is not yet
extremely overbought. So next week
will be critical. The next level to
watch: 10450. If we can close
above that level, the 11000 level still
constitutes
a big hurdle. So we are not out of
the woods yet. Further
developments still depends on the Fed’s policy. Will the Fed become less aggressive in raising rates because
of one subdued employment data? We
doubt it. If the Fed is more
interested in preventing an extreme asset bubble from forming, then it will
have to tighten some more. If the
fear is inflation, we should say that no such danger is evident. As we have pointed out repeatedly in
this column, the new economy is non-inflationary. Actually we suspect that the wide availability of the
internet means that a lot more economic sectors will become price competitive.
As I have pointed out long time ago, the e-retailers
have shown themselves to be unable to make a profit. The amazons of this
world have no pricing power. Indeed we can regard the e-retailers
as the modern day Robin Hoods. Robbing the rich (shareholders) to
subsidize the middle class consumers. But there are still strong techs out
there: the B2B internet stocks,
the software and net infra-structure stocks. Although no one is making money on
the internet, it is still paramount for all companies to present themselves on
the net, if only to defend their brand image.
So we should see continued investment by companies of all sizes on e-commerce
software, and internet infra-structures. And companies will have to get ready
for the next wireless phone internet presence.
Therefore we wouldn't sell off all tech stocks indiscriminately.
We were wrong about the German markets last
week. The Dax has remained incredibly
strong. We have no idea when a correction will finally take place. But the Neue Markt has become every bit
as frothy as the Nasdaq. The advances in the Dax have become very narrow. Only a handful of stocks kept on going
up:Deutsche Telekom, Siemens and SAP. That a sign of a market top. But it will be difficult to time it
exactly. For the next week we
still see the Dax up, if the Wall Street continues to be strong.
The CAC was extremely strong last week. The correction on the French market
seems to be over. We expect higher
highs next week.
As
we had expected, the Swiss Market remained weak. Indeed it has become one
of the weakest in Europe. The Nestles and Roche just don't seem very sexy
in comparison to the high flyers on the Nasdaq or the Nemax. But steady
growth and earnings should not be sneered at. Long term investors, now is
the time to load up on these two stocks.
As I had already pointed out before, we should almost regard Roche as a biotech
incubator company. It is therefore still very much undervalued. Buy
on weakness!
Our favorite stocks remains SAP, Nokia, Ericcson, Cable and Wireless.
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*We decided to calculate the performance since recommendation, because
we have recommended the different stocks
to buy
at different times. Since we're convinced that one should be long term
investors, we think the performance
since
recommendation is a better reflection of our goals.
Cap Gemini
soared last week on the news that it had taken over Ernst Young
Consulting. It is regarded as a good move for Cap
Gemini to expand its
e-consulting
business in the US.
Last week
we recommended buying Roche GS.
The timing was good. We’re
up more than 4% last week. For
Roche that is a good move.
The dollar broke above the SFR.1.60. The next level to watch is SFr. 1.68. The dollar remains strong,
because the US economy remains strong and the Fed is forced to raise the
interest rates. Plus the US budget surplus is a big positive. We might
even see SFR. 1.80 this year.
International Financial Systems: The Asset Bubble
Everyone is talking about the asset bubble in the US waiting to burst. Greenspan is playing with
fire by relentlessly hiking interest rates. Will the asset bubble burst in
the US just like it did in Japan? I doubt it. History seldom
repeats itself. The stocks in the US will correct by sectors. At the
moment the general market valuation is not high. The overvaluation
is in certain red hot high tech stocks. The old techs have
corrected. Even the internet stocks have started to correct. Investors
are much
more discriminating. For example: Amazon is way off its highs. Dr.
Koop is below its IPO price. Hot stocks like JDS Uniphase and I2
Technologies are trading on their glowing future prospects. And who can
really say what kind of growth the future will bring? Indeed, if Greenspan can
manage a soft landing for the US economy without crashing the stock markets,
the future of global economy can be exceedingly bright.
When talking about the
asset bubble, analysts and jounalists tend to forget about the volatility of
the bond , currency and real estates markets in the last decades which cause investors
to be less than enthusiastic about those instruments. Stocks have shown
themselves to be a better
investment for the long term. As this insight begin to sink in the psyche
of the world baby boomers, we should see greater allocation to equities than
ever in history by the European and Japanese investors. That trend will cushion
the blow of the rising interest rates in the US.
Future Trends
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 brand name 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 UPS. We would also recommend the stocks of Corsair (CAIR),Qualcomm, Ericsson,
Nokia, Epcos 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,
Cap Gemini,Broadvision and i2 technologies.
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*The stock prices are provided for informational purposes only
and not intended for trading purposes. The opinions
expressed in these pages are what they are: opinions! |
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