| Investment Views (May 1st 2000) |
The retreat on the Dow is not as negative as it might seems. We
could also manage to
make a double bottom here. It is critical that the Dow should
not fall below the 10400
level and more importantly not below the 10000 level.
The Dax and CAC had been faring better than the Dow. The weak
Euro is providing
some very good earnings reports for the blue chips in Europe.
We expect the Dax and
the CAC to continue to outperform the Dow, as long as the Euro remains
weak.
The SMI is exhibiting some strength also. It hasn't managed to
fall below the 7300
level. But we still expect some weakness next week. Up
until now, the prospect
doesn't seem all that bleak as long as the market remains above the
7300 level.
Monday will be mostly a holiday. So we have to wait until Wednesday
to see the trends
clearer.
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Ericcson and Nokia had both reported smashing numbers. Profits
for the quarter increased
76% for Nokia and more a few hundred percent for Ericcson. Best
of all, both companies
reported strong orders for the coming quarters. Nokia remains
our favorite, since it
manages to have a 24% margin on handsets while Ericcson only manages
about 8% and
Motorola 1.5%.
This week we recommend another highly risky company: Think Tools.
But this company's
product, a decision making software, is so innovative and promising
that we decide to
recommend it, although it can be very risky and volatile indeed.
We warn investors,
however, to limit their committment to what they can afford to lose.
The Swiss Francs remain stronger than the Euro after the National Bank
raised the interest
rates by a surprising 3/4% last February. But the dollar remains
positive against the Swiss Francs.
The level to watch is SFr. 1.50. Since we broke above the SFr.1.68
level last week, our next
target is the SFR1.80 level.
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.
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.
| *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! |