David Cobbe
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Telecom stocks have been one of my main themes this year: VOD in particular. Since around the end of May I felt that overall, the stock would trade lower. Specifically, many analysts were driving their stock price targets to £5 and beyond. My main concern at the time was that the 3GL bidding war would place a massive financial burden on the companies. Moreover, the companies cannot prove the technology until after the event: the downside risk is too great in my opinion. Overall, I still think 3GL technology is a “bad thing” because the content and functionality captures a gimmicky market. Generally, gimmicks do not command a large cash flow, the initial attraction wears thin, and boredom seeps in. In addition, the Helsinki University of Technology has designed some software compression techniques (11Mbps) that can transmit at the 2.4GHz frequency. This frequency does not require licence agreements and so even if 3GL would transpire to be successful; it would be very easy to emulate a 3GL handset without undergoing the financial burden.
I am not against technology. Actually, I tried to push an idea onto Alliance & Leicester. I think combining credit card technology with mobile handsets is a low cost and more flexible alternative. You enter a shop, scan an infrared tag with your handset and the handset submits the transaction details to the various bank accounts. From my own IT experience; such a system is very easy to implement (over half of the technology is there anyway) and will lend itself to a more proactive form of shopping. For example, your handset will know your shopping habits and can advise you in advance, if there are bargains in the area, which you may find interesting. The handset can act as a navigation system too, directing you to the location if you are not familiar with the area. In addition, it is interesting to see the Bank of England echo similar concerns. Sadly, the concerns come rather late in the day: Sir Eddie should have agreed with me in my Money World post, May 2000.
Going forward, I think next year is going to look ugly, worse than now in fact. Interest rates take about six months before they start making an impact on to the economy. Slashing interest rates now is not going to have an immediate impact until about June 2001. During that time, the earning season reports will show greater evidence of an economic slow-down and panic of a “hard landing” will increase. It will be difficult for the market to comprehend: we are cutting interest rates and yet the indicators will show that the economy is increasingly cooling down.
As an investment strategy, you may be tempted thinking banks will do well if the central banks cut interest rates. However, many of the banks and special finance companies have heavily exposed themselves to the technology bubble. The bubble has burst and consequently this will affect the banks. It is unlikely that the bank stocks will break out of their three year trading range.
I think retail is a misguided perception of a defensive sector. Sure, people still need to eat: bread is nice. However, if the economy does slowdown, people will spend less and therefore the retail spending will decrease. Consequently, the retail profits will be very flat and the danger is that the sector could look over-valued in relative terms. The same applies to housing too: if people are going to spend less then housing prices are likely to flatten, which in turn will affect the retail (home improvement) and construction sectors.
If you are going to trade a difficult market, you will need to be very selective. Companies are earning less; therefore, they will spend less. If they spend less, the service sectors in turn will earn less. Just because Psion, Kingston, and others are cheap, there is no law saying they cannot get cheaper. If retail have no money to spend and corporations have no money to spend; who is going to buy their products?
Finally, keep in mind that “fear” is about 1.6 times more influential than “greed” insofar as stocks will only trace about half their losses.
All the best for the New Year!
David
I am not against technology. Actually, I tried to push an idea onto Alliance & Leicester. I think combining credit card technology with mobile handsets is a low cost and more flexible alternative. You enter a shop, scan an infrared tag with your handset and the handset submits the transaction details to the various bank accounts. From my own IT experience; such a system is very easy to implement (over half of the technology is there anyway) and will lend itself to a more proactive form of shopping. For example, your handset will know your shopping habits and can advise you in advance, if there are bargains in the area, which you may find interesting. The handset can act as a navigation system too, directing you to the location if you are not familiar with the area. In addition, it is interesting to see the Bank of England echo similar concerns. Sadly, the concerns come rather late in the day: Sir Eddie should have agreed with me in my Money World post, May 2000.
Going forward, I think next year is going to look ugly, worse than now in fact. Interest rates take about six months before they start making an impact on to the economy. Slashing interest rates now is not going to have an immediate impact until about June 2001. During that time, the earning season reports will show greater evidence of an economic slow-down and panic of a “hard landing” will increase. It will be difficult for the market to comprehend: we are cutting interest rates and yet the indicators will show that the economy is increasingly cooling down.
As an investment strategy, you may be tempted thinking banks will do well if the central banks cut interest rates. However, many of the banks and special finance companies have heavily exposed themselves to the technology bubble. The bubble has burst and consequently this will affect the banks. It is unlikely that the bank stocks will break out of their three year trading range.
I think retail is a misguided perception of a defensive sector. Sure, people still need to eat: bread is nice. However, if the economy does slowdown, people will spend less and therefore the retail spending will decrease. Consequently, the retail profits will be very flat and the danger is that the sector could look over-valued in relative terms. The same applies to housing too: if people are going to spend less then housing prices are likely to flatten, which in turn will affect the retail (home improvement) and construction sectors.
If you are going to trade a difficult market, you will need to be very selective. Companies are earning less; therefore, they will spend less. If they spend less, the service sectors in turn will earn less. Just because Psion, Kingston, and others are cheap, there is no law saying they cannot get cheaper. If retail have no money to spend and corporations have no money to spend; who is going to buy their products?
Finally, keep in mind that “fear” is about 1.6 times more influential than “greed” insofar as stocks will only trace about half their losses.
All the best for the New Year!
David
