"Buy Europe, Sell U.S" advises a headline on Canada's
National Post.
Merrill Lynch and Morgan Stanley seem to have come to
the same conclusion: US financial assets are overvalued
and vulnerable.
The Financial Times elaborates: "Morgan Stanley, the US
broker, is starting to shift its asset allocation away
from the U.S. and towards Europe after concluding that
US leadership in the global economy and world markets is
coming to an end.... The firm said it's particularly
concerned that 'ballooning' US current account deficit
is now being financed largely by portfolio flows."
US assets are expensive. International investors have
been willing to pay a "security premium" to own them,
notes Morgan Stanley, because American investments
seemed safer than those in other parts of the world. But
the Enron story has caused the smart money to wonder -
what are US assets really worth? How much of a premium
should I pay?
Once the questions begin, they are hard to stop. Aren't
the numbers fudged? Isn't the U.S. running the biggest
trade deficit in history? Aren't US consumers the most
heavily indebted in the world? And haven't US
corporations suffered their worst drop in capital
investment and earnings since WWII?
Under the circumstances, why give US assets any premium?
Shouldn't they be given a discount instead?
As we said yesterday, we have no problem with the scheme
of things - the loop of global cash and credit that
hoists up US asset price. But we have no reason to think
it will last forever either.
"Buy stock in Microsoft today," says an email message I
got from Dick Young recently, "and, frankly, I don't see
how you can miss long term."
"I'M SURE YOU'VE heard of Microsoft's 'Xbox' by now," he
continues. "It's Bill Gate's first foray on his new
crusade. This "game console" is actually a full- fledged
computer in disguise - and the cheapest one on the
market at that. It has an internal hard drive, a
screaming 733-MHz processor, Internet capabilities, 10
gigabytes of storage space, and it even plays DVDs.
"You see, this first-generation Xbox - with increasingly
powerful models to quickly follow - is just the
beginning of Bill Gate's plan to MONOPOLIZE home
entertainment and personal computing.
"The man who defined how computers would operate -
crushing Apple and Steve Job's dreams in the process
- is about to REDEFINE the computer itself. His
vision takes it off the desktop -- taking up where
Michael Dell left off - to integrate PC power into
every facet of your everyday life."
Here at the Daily Reckoning, we wouldn't know an Xbox
from a box of Kleenex. But it sounds like just what
we've been waiting for - PC power in every facet of our
daily lives.
We're not so sure about buying Microsoft, though. The
company's earnings have gone nowhere in the last four
years. But its stock is still trading at 58 times
earnings.
But wait. Alan Newman of Crosscurrents notes that
Microsoft's earnings aren't much better than those of
other US companies. If they were reported on a GAAP
basis, Microsoft would be trading at more than 100 times
earnings. If you were buying the whole company, in other
words, at today's price you'd have to wait until the 22nd
century to recover your purchase money from earnings -
that is, if everything went well.
-- taken from today's Daily Reckoning |
