Barton Biggs On Tech. And Interest Rates
Founder And Chairman, Morgan Stanley Dean Witter Investment
Management, New York City
Barton Biggs
Barron's: Barton, you were right as rain in January about the trouble awaiting tech stocks. Is it over?
Biggs: Not entirely. The momentum became so excessive that the bubble burst in the really speculative parts of Techland, particularly in the dot.coms. A lot of the damage is permanent. Of course, out of all this there will be 10 great dot.com companies that will prove wonderful long-term investments. But thousands were created and most are going to fail. As for the rest of Nasdaq, the really good Internet infrastructure and wireless-telecom stocks got nicked. But they didn't get taken apart. There still is a very significant institutional bubble in those areas.
Q: How much longer can it endure?
A: We're going to see the pricking of that bubble later this year, but just when is impossible to forecast. The Ciscos, the Nokias, the Nortels are absolutely marvelous companies. But at 80-120 times earnings, their multiples are too marvelous.
Q: How will the rest of the year play out for the U.S. stock market and economy?
A: The good inflation news we had three weeks ago, and the indications of a weakening economy that triggered the market's latest surge, are false signals. By late summer there will be more signs that inflation is beginning to accelerate, particularly in wages. Also, the economy, though it has slowed, still will be growing at a 3%-4% real rate, and that's too fast. So the Fed will have to take more action and possibly raise rates by another 100 basis points [one percentage point]. The stock market has discounted a soft landing. It may be that we get one, but we don't have it yet.
Q: Does the rest of the world look better from an investment standpoint?
A: Europe is a couple of years behind us in the economic cycle. That means the European economy is accelerating from a low base, rather than decelerating the way ours is. Also, there are real signs that the euro is starting to appreciate against the dollar. So the European markets are going to have the currency wind at their back.
At the same time, I continue to feel good about Japan. It's had its ups and downs, but the Japanese economy looks reasonably healthy, and earnings have been very strong. In the first quarter they were up 40% on average. Corporate restructuring and rationalization continues. Meanwhile, Japanese tech stocks have been hit much harder than tech stocks elsewhere in the world. If I were going to buy tech I would buy it in Japan.
Q: When the day of reckoning comes for the blue-chip techs you mentioned, however, won't Japan's technology stocks get hammered anew?
A: Sure, a big selloff here will affect Japanese tech stocks, but I don't know when it's going to happen. Until then, I would expect Japanese techs, particularly in the wireless and telecom areas, to outperform Nasdaq. |
