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Question:
Can a bubble be a bubble when it is constantly labeled as a bubble by
participants? Many have drawn similarities between Nasdaq 4000 and
Nikkei 40000 on a Jan 1st. As one blew, the other will too or is it?
When Nikkei hit 40.000 nobody labeled it a bubble except a few weirdos.
nobody was scared to death it would fall. Nobody expected the japanese
miracle to stop.
Today Nasdaq is coming back towards 3000 from 4000, and everybody is
full of "we all know it is overvalued". When Nikkei dropped to 30000,
people did not think it was overvalued, they were wondering what was
happening. I receive reports from big bears, and people are scared to
buy at 30% discount what they ran after last week at full price. Is this
a big new bear, or is it a wall of worry?
The truth is nobody knows what internet cies are really worth. One thing
seems to appear, which is the internet is here to stay, and big time. It
progressively invades every aspect of our lives, and of businesses. Just
like the PC revolution, we have now the net revolution. Unlike the PC
revolution, changes occur in six months instead of 3 years, so our minds
are a bit overwhelmed sometimes, pendling from fear of heights to
reckless optimism.
The truth is also, the majority is now seriously looking for valuation
models. By majority, I mean the mainstream institutionals who invest
more and more in tech and net, because of perf pressure and benchmarks
(Yahoo in SP)
My best guess is we'll start a major selection process, with leaders
commanding premiums and the others falling through the floor.
As for the global markets, I have trouble correlating the appearance of
tremendous changes in the world through internet, and global bear
markets. To me bear markets occur when the economies are about to tank,
which they often do because we are in a vision slump (major bear, like
Japan) or undergoing a management mistake (temporary bear as Asia
crisis). I don't see lack of vision at the moment, in fact, never before
has the world been so much in change as now, this just can't mean the
end of all things, but major volatility yes, and increasing selectivity
yes.
Volatility means extremes. Coming from extreme positive assumptions we
may swing to extreme negative ones. One of these is the bond scenario,
and the rate increases. This is election year in the US. With a tanking
market as now, the economy will slow brutally anyway, and rate increases
will not be that necessary if at all. My view is that rate fears are
completely overblown. Bonds are in the hole, people totally bearish. One
has to give. One cannot claim people are too bullish stocks so these
have to fall, and then ignore the bearishness in bonds, and say these
will fall as well. As usual, things will turn out different from the
consensus. At the moment it is:
- techs are over overpriced,
- rotation into blue chips,
- small caps will outperform
- indices will range at best, if not slump severly
- rates will increase in Feb by 25 to 50bp, 75 to 100 bp for the year.
- bonds stink
- Japan risks falling back into recession
- euro is rising to 110 or more as Euro growth picks up.
- restructuring activity will explode in Europe.
It is obvious all of this cannot happen simultaneously, as mergers would
create rising indices in Europe, hence also in the US. falling markets
in the US would freeze further rate hikes, maybe trigger rate drops.
Old Japan is being replaced by young tech Japan, and the 00s will be
bull all the way.
As for the euro, it will fluctuate without any ECB intervention
whatsoever.
What are your thoughts?
Gwenn
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