Forum Archive Index - February 2000

["Mike Hudson" <mikehudson@clear.net.nz>]

Here is an interesting snippet from today's broker's newsletter

"Everything has a price - even earth-moving, rule-breaking,
paradigm-shifting technological change.  It's possible to believe all the
high-tech hype and still blanch at the price gap that has opened up in
global equity markets:  the top 100 NASDAQ stocks trading at a PE of
120-plus, while household names like General Motors trade on prospective PE
of under 10 (or under 12 for JP Morgan; around 18 for Boeing;  24 for
Exxon).  Investors are now starting to wonder if the price gap has got too
wide, and are rotating out of the high PE stocks into some of the cheaper
sectors.   We've seen this, briefly, before:  the year started with this
sort of rotation, but the NASDAQ recovered to set a new all-time high on 21
January.  This time may be different.   Firstly, the price gap between
growth and non-growth has opened to unprecedented wide levels;  the further
the elastic stretches, the more likely a snap-back.    Secondly, the
prospect of Fed tightenings and rising bond yields are concentrating minds
on the benefits of getting earnings up-front.   Thirdly, and most
importantly, the Fed tightenings (there will be more than one) signal a turn
in the liquidity cycle; the prime beneficiary of the loose liquidity has
been the NASDAQ stocks so the fact that the Fed is tightening liquidity is
the main reason for thinking that this correction will be different:  it
will not be the dip to buy.     Meanwhile, bond yields are likely to creep
higher after the Fed tightening (due Wednesday);  for more on that, see page
2"

I think there's something in that for all of us, don't you?

Cheers
Mike H

PS his recommendations today; Buy BHP, Sky TV and Oil Search.


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