Forum Archive Index - May 2000

[Phil Eriksen <phil@acepay.co.nz>]

craig & celyn bird wrote:
> 
> Oliver-On a similar note, I would like to see the U.S mrkt crash good
> and proper.Had a discussion recently with someone (my mother in law of
> all people)about why the Fed should just get on with popping the
> bubble and not letting out little pieces of air from the side vent.Is
> a crash worse(a lot stand to lose heaps-is this political also)or is a
> series of slides better where people can lose money gradually and in
> increments.Is everyone making $ in todays mrkt?I hate the current
> cautious behaviour of NZSE/ASX  but that is the nature of our economic
> cycle right now,good to see some consistent correction last few days.A
> controlled slide could allow  Govt to choose the level of equilibrium
> but a mrkt will do that anyway should an overcorrection occur.Smart
> people will have decreased exposure to 'danger' stocks, so if they've
> hedged already, go on- POP IT.Oh but the tycoons will lose billions
> -wouldn't that be nice,I'd just like to make $1b. Guess the current
> Govt doesn't want to be seen as the baddies in being the one to
> implement that.What thoughts from the panel?

Well, this section of the "panel" really doesn't know.  It sure is an
odd bubble.  While one section of the sharemarket has gone to dizzy
heights, have a good wade through the US market.  There are a lot of
companies that I can see significant potential for.  The problem (thus
the low volume, especially in the nasdaq) is hell, when do you buy?  

In terms of popping the bubble, I don't think anyone really knows what
to do.  Many don't acknowledge that there even is one, and certainly if
you take a look at glamourless companies churning out cash selling at
pretty fair prices you could argue "what bubble?".  

Two companies listed over there worth keeping an eye on are MO (Philip
Morris) and WWFE (World Wrestling Federation).  MO is a powerhouse,
strong cashflows, highly profitable, and dominant in tobacco, food and
liqour.  Despite the share price moving up 30+% in recent weeks due to
merger talk, the p/e is a joke and they pay a "nz style" dividend.  I
see a very strong potential for further gain here, and if we do move
into a major recession as some think, I would rather be in MO than many
others.  The reason for the bargain price, of course, is the (in my
opinion) small but real chance that the company is doomed due to the
anti-smoking lawsuits.

While this risk should be reflected in the share price, I think the
market has gone way overboard.  Think about it.  To date, they have been
doing a pretty good job of passing all the extra costs they incur (ie
the settlement) onto consumers.  The beauty of tobacco and to a lesser
extent liqour, is that you can do this.  So the "fear" that exists is a
fear of things getting worse.  A fear that something else will happen. 
But what?  If Philip Morris reps visited the US president, offered to
shut down the tobacco business if a law was passed outlawing it (ie no
one else could sell it either), what do you think he'd say?  He would
freak.  The only real effect of the tobacco lawsuits is the states are
getting richer, the lawyers are getting richer, and the smokers are
paying the bill.  They don't want to close down the tobacco industry. 
If they tried all that would happen is the legal revenue derived from
tobacco would shift (along with many jobs) to illegal revenue from
tobacco, sold by people other than Philip Morris.

As for WWFE I won't get into any detail, as I doubt many are interested
in US shares, and with WWFE, my explanation would be long and winding. 
It's the sort of share I like - you can find many reasons not to buy,
there is currently a big question mark over them (XFL - WWFE are setting
up a business to compete with NFL) and the boss is a nutcase (but IMHO
one of the few truly great marketers). There is also a lawsuit or two
yet to be settled, but this isn't unusual in US business, and definately
not unusual for WWFE.  However, they have this delightful little habit
(and a long track record) of being successful and making money.   They
are basically debt free, their current business (WWF) is very strong and
the new business they are developing (XFL) is the component that has
seen the shares marked down but *could* be a goldmine.  However,
everyone who has tried to enter the industry XFL are going into has
failed badly, thus the reason for the shares underperforming since the
XFL initiative was announced. The reasons i'm in are (a) if XFL fails
completely, the total cost to WWFE should be no more than the expected
retained earnings over the next 2 years (b) there are very important
differences between XFL and the previous companies that have tried to
enter this field and (c) the way it is structured, if it works,
virtually all benefits accrue to WWFE as they own all the teams, rights
etc. and finally (d) Vince McMahon is almost the only person who can
make a wrestler falling from a prop and splitting his head in half into
a positive (the way it was handled was superb, i'd love to elaborate).

The thing I find interesting about businesses like these is the "market"
sells these two industry titans (both dominate their fields) because of
*fear of the future*.  Philip Morris is extremely good at what it does -
the "fear" is that someone may stop them doing it.  WWFE is extremely
good at what they do - the fear is that they won't be able to do well
what others have done badly (ie compete with NFL).  The "market"
however, up to now has been happy to pay anything for tech because of
"fear of the future" too - a fear that these companies are the future, a
fear that everyone else is getting left behind and a fear that they are
will miss the boat if they don't buy.  Think about it, WWFE and MO have
to find a way to keep on doing just what they're doing now, tho with
WWFE admittedly theres more to it than that.  If they do that, no
heroics, nothing amazing, I believe they justify their valuations. Some
of the tech firms, however, have to create new industries, turn around
flawed business plans and overcome kamizake competition to reach their
'destiny" in 10 years.  And if they do? - they'll probably be worth less
than their current valuation.

If thats not an irrational market, I don't know what is.  The reason I
mention specific shares (I usually prefer not to) is just to point out
there is, IMHO, value to be found.  If the "bubble is popped", what
effect does it have on these 2 real companies? - certainly some effect,
but enough to cripple them?

In conclusion, this is the most rambling message I have ever posted.  I
don't know what the fed will do, I don't know when the bubble will be
popped, and I don't know what the effect will be on shares that are not
overvalued.  What I do know however, is that i'll keep on smoking like a
chimney, and scrawny pimply teenage males the world over will turn on
their tv to watch something they know is fake.  And thats really the
point, its certainly a tough time to be an investor, but if something is
good (or addictive!) it'll keep on selling, and if you can get in at the
right price, you'll probably do fine over time.  

Cheers,
Phil

P.S  Although I doubt anyone buys shares because they saw a post on
Sharechat, if anyone likes the sound of WWFE or MO please note my
explanation was simplistic(you'll note I quoted no numbers), and that
there are definite risks involved here.  XFL could fail, and cigarettes
could be made illegal.  Both of these companies are big and information
is easily available - do your own research!

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