For those interested, Oz Equities have published this week 2 separate commentaries regarding the state of the US markets (sans Worldcom).
Tonight (as it has done throughout today), Worldcom will influence the immediate outlook, but looking further ahead, the US startegists have identified market recovery options, both in the US and overseas, including in Australia.
In the first of the 2 articles which was published this morning by Oz Equities (26 une 02), Dr Metz, CIBC Oppenheimer chief investment strategist, was quoted in detail.
4 primary observations from the article: 1) markets are 2/3% from a holding low; 2) gold to rise to US$400 this year; 3) US dollar under continuing pressure; and 4) Australian dollar to continue appreciating in value.
The 2nd article was published last Monday (24 June 02) and concerned an update from the Barrons' Roundtable of January this year.
A number of primary observations were also contained in that article, including: 1) gold to rise; 2) Nasdaq and telco stocks to be short squeezed in the coming months (ie: suggesting a sharp Nasdaq rebound); 3) Australian stocks are on the favoured list, including metals, gold, and food companies; 4) US dollar to further devalue but on a gradually declining basis (~20% over 2 years); and 5) markets close to forming a bottom-line base.
Summarising the discussions in further detail:
BARTON BIGGS: 1) foreign markets to outperform the US; 2) US$ to fall 20% over next 2 years, including 5% in remainder of '02, and 5% in '03; and 3) stock picks (US) telcos and drug companies, and (o/s) non-Japan Asia (pace of recovery underway, but drawn out).
MARIO GABELLI: 1) stock picks = gold, and wine, water, beer and soda stock.
JOHN NEFF: 1) Tyco, for recovery, both in value appreciation, and in earnings.
DR MARC FABER: 1) Foreign investors to buy less US assets, but "may not become sellers of US assets"; 2) USD -20% against the euro. "(L)ess against the Japanese yen"; 3) "The big loss however will come from all currencies against a basket of commodities, particularly precious metals"; 4) on GOLD - "If the world investment community would put just1% of its assets in gold and silver there wouldn't be enough gold and silver and mining companies to go around"; 5) comments on Zimbabwe Platinum - "has a very low valuation. If it were in the US, the valuation would be 10 times higher"; and 6) stock picks = mining, plantation and food companies in New Zealand, Australia, Indonesia, Malaysia".
FELIX ZULAUF: 1) US market = structural bear market (ie: 10 years duration); 2) general market is making a good short term if not intermediate term low; 3) not in the mood to buy stocks for the next six months; 4) stock picks = "in August there is going to be a tremendous short squeeze in technology, telecom, biotech and other Nasdaq type stocks in Europe and the US; and 5) "Nasdaq could go up 30% or so over the next two months".
------------------------------------------------------ DR METZ'S ARTICLE, DATED 26 JUNE 02:
DOW 2/3% A FROM LEVEL THAT WILL HOLD, GOLD AT $US400 THIS YEAR By Jenny Prabhu
CIBC Oppenheimer chief investment strategist Dr Michael Metz said this morning the Dow is within 2/3% of a level where it will hold. "Unfortunately it is not going anywhere on the upside" Dr Metz added, "The bear market is still continuing".
A major reason is that the flow of foreign investment funds into the US has fallen. The investment strategist also expects there will be an inflation scare later on this year, partly because of the weak US dollar which has further to fall. In fact, Dr Metz expects a major move down in the US$ in the next few weeks because hedge funds will short the US currency to push it lower. As for gold, Dr Metz said it has another major move up, "Gold will sell at $400 this year because of the enormous diversification into gold and gold stocks in the US".
Dr Metz believes the $A has further to rise.
On April 18 this year Dr Metz had said NASDAQ is in very serious trouble, the Dow was a little better but basically the (equity) market has no upside. Dr Metz said the equity risk premium is going to rise, p/e ratios will come down, and the American householder and Europeans are getting disenchanted with US stocks.
The US dollar will be under pressure because of a marked aversion to US assets and Europeans will start putting their capital into domestic issues rather than bringing it to the US.
For the next couple of years, Dr Metz had said, "The (US) economy is going to recover but after the inventory rebuild has been completed, growth will be very slow - 1.5% to 2%, and corporate profits will be disappointing. P/e ratios will be headed down. So you will have a market where the economy is okay, not thrilling and the stock market goes nowhere".
Since April 18 the Dow has fallen a little more than 1000 points, NASDAQ has fallen from 1810 to 1424 currently, the Aussie market has fallen almost 200 points, the US$ which was at 130.77 Yen on April 18 is now a little over 121 Yen, the Euro which was at 88.85US c is now around 97.68US c. The $A which was at 53.77US c on April 18 is now around 57US c.
------------------------------------------------------ MORNING ALERT!! 24 JUNE 2002
LIKELY TO FALL ABOUT 25 POINTS BY THE CLOSE By Jenny Prabhu
*Barron's in its cover story updated the January Roundtable gurus recommendations. Barton Biggs and Mario Gabelli believe the US market is close to a bottom, barring another 'bolt from the blue'. Dr Marc Faber also remains bullish on gold and silver.
Felix Zulauf says the general market is making a good short term if not intermediate term low. "The next four-eight weeks will be a lot of fun on the upside". He said
"There are many insurance companies that have to protect declining reserves. When the market falls as we approach a key reporting date or the end of a quarter, these companies start selling or hedging the stocks they have left. That has accelerated in the past two to three weeks and is a classic sign of the creation of an intermediate-term bottom". He added that in August there is going to be a tremendous short squeeze in technology, telecom, biotech and other Nasdaq type stocks in Europe and the US. The Nasdaq could go up 30% or so over the next two months. (More 'in other news' below).
In other news
Barton Biggs sees foreign markets continuing to outperform the US, and expects the US$ to fall another 5% before year end and another 5% next year in the first half, in all down 20%ove the next three years. In the US, he suggests busted stocks like the telcos, some drug companies. Overall, he suggests non Japan Asia is the best place to be and says there's nothing the matter with Japan either though the turnaround is slow.
Mario Gabelli says as for stocks, gold was bright in his portfolio, and wine, water, beer and soda stocks did well. He suggests Cablevision Systems is a great buying opportunity in an industry tainted by the collapse of Adelphia.
His third pick is CH Energy Group.
John Neff said he bought Tyco, at $20.80 with the stock now at $15, which isn't a great price but he says he expects earnings of 42.60 a share this year and if it sells for 10/12x earnings next year, that will mean $30/36 He also likes Washington Mutual.
Dr Marc Faber said foreign investors may not become sellers of US assets but they might buy less. If they buy less in financial or other assets, the US trade and current deficits would have to shrink. He thinks the dollar could lose 15/20% against the euro, maybe less against the Japanese yen.
Dr Marc Faber added, "The big loss however will come from all currencies against a basket of commodities, particularly precious metals".
Dr Faber said, "If the world investment community would put just1% of its assets in gold and silver there wouldn't be enough gold and silver and mining companies to go around. So it wouldn't take a lot of money to lead to a really significant rise in prices. My favorite stocks in the metals universe are Harmony Gold, Apex Silver and Pan American Silver. Harmony is run by a friend of mine, who happens not to be a crook. Apex Silver is also run by someone I know quite well who isn't a crook…
Zimbabwe Platinum which is based in Zimbabwe but listed in Australia has a very low valuation. If it were in the US, the valuation would be 10 times higher". Dr Faber said Robert Mugabe will eventually go. And Zimbabwe Platinum will experience the sort of revaluation the Russian market did under President Vladimir Putin.
He is still keen on some Indonesian stocks, said he isn't keen on China where valuations are high. He would rather buy companies on the periphery, "Mining, plantation and food companies in New Zealand, Australia, Indonesia, Malaysia".
Felix Zulauf said the US market is a structural bear market and those usually last on average at least 10 years. "That doesn't mean there won't be opportunities, but investors should be aware that you cannot buy, sit and hold and then get rich over time. You have to trade this market for several weeks to a few months. In and out, in and out. If you don't do that you will end up a loser. And the majority of investors eventually will". Felix Zulauf says the general market is making a good short term if not intermediate term low. "The next four-eight weeks will be a lot of fun on the upside". He said markets are extremely oversold in Europe and the US which trade almost in lock step although the valuation gap is the widest ever. He said, "There are many insurance companies that have to protect declining reserves. When the market falls as we approach a key reporting date or the end of a quarter, these companies start selling or hedging the stocks they have left. That has accelerated in the past two to three weeks and is a classic sign of the creation of an intermediate-term bottom".
Dr Zulauf added that he was not in the mood to buy stocks for the next six months. He said there is a huge amount of debt in the world and servicing it puts downward pressure on economic growth in the industrialised world.
"Debt service payments now are about as high as new credit creation. In the US, the game is over and Japan is just the same. Europe is not as bad but is getting there fast". In general, corporate earnings will not grow faster than 5% in either Europe or the US, against expectations of 14/15% in the US and 11% in Europe. He added that in August there is going to be a tremendous short squeeze in technology, telecom, biotech and other Nasdaq type stocks in Europe and the US. The Nasdaq could go up 30% or so over the next two months.
