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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (40747)	2/19/2000 10:15:00 AM
From: Les H	Read Replies (1) \| Respond to of 99985

ANALYSTS: GREENSPAN RATE WARNING SPURS MOVE INTO TECH STOCKS By Mark Pender NEW YORK (MktNews) - Federal Reserve Chairman Alan Greenspan's warning Thursday of significant rate hikes ahead has raised the chances of further rotation into U.S. technology shares, some analysts say. The surge in technology stocks at the expense of non-technologies has coincided to a large degree with expectations for higher interest rates. Worries that rates would go higher into 2000 first emerged in early December and had clearly firmed by Dec. 14 after the surprising 0.9% jump in November retail sales. Since the beginning of December, the Nasdaq Composite, an index heavily weighted toward technology, has risen more than 35% while the Dow Industrials, an average balanced the other way, has slipped over 4%. The technology battle cry contends that demand surrounding the Internet is non-cyclical, based on the momentous promise of the new technology. The sector's strong productivity and its reliance on share-issuance as opposed to bank borrowing give it further protection against higher rates. The victim? The rest of the market. Dealers thought a post-New Year selloff in the Nasdaq was the beginning of a counter-rotation, but a strong December jobs report that included a higher-than-expected rise in average hourly earnings rekindled rate worries and put new premiums on non-cyclicals. After Greenspan's hawkish Humphrey-Hawkins testimony, some see more of the same ahead. "Right now technology companies are in such a tremendous growth phase that interest rate hikes really aren't going to take too much of the wind out of their sails," said Joe Abbott, senior equity strategist at analysis-firm IBES. Abbott says annual earnings growth in technologies, three years and running at 20-plus percent, is "in a sweet spot." In contrast, brick-and-mortar firms average just above 10% earnings growth, and more importantly their demand base is generally vulnerable to interest rate swings. He says basic material companies and traditional retailers will be especially squeezed by an economic slowdown. "Given the separate outlooks for demand between technologies and non-technologies, the earnings divergence will continue," he said. Universal demand is the bedrock of technology's strength. Consumer demand is just dawning, while business demand is well established and the sector's best hope in a slowdown. "This is a once in a lifetime change, and businesses that don't use the new technology, no matter how rates look, are not going to survive," Abbott said. The other side of the tracks of course is suffering from what many say is disinvestment. Henry Hermann, chief investment officer at Waddell & Reed, warns that "momentum players" are distorting market valuations and shifting the balance from value companies to growth companies." Abbott concedes that markets overswing by nature and agrees that a counter-rotation could be in the cards. But he continues to recommend technologies whether the investment horizon is 10 years or 10 minutes. "If we see a pullback, take it as a buying opportunity," Abbott advises. Dealers and analysts agree that portfolios must have a significant weighting in technologies, but warn that groups within the sector may respond differently to higher rates. Hermann, a veteran technology analyst, warns especially about boom and busts in semiconductor shares related to economic cycles, while others warn about a possible rate-related slowdown for the personal computer makers. But many agree that web-enabling firms, specifically those that write software or make backend equipment, are most likely to rise however the Fed s monetary policy unfolds. Also considered immune are broad-band companies or related equipment makers that are building the telecommunications foundation of the web. As rates go up, non-cyclicals will continue to benefit at the cost of cyclicals, and the non-cyclicals that do best will be the ones where underlying product demand is strongest. As Abbott says, "You have to put your money where the earnings are."

To: Les H who wrote (40747)	2/19/2000 11:26:00 AM
From: Crimson Ghost	Respond to of 99985

The Spin Doctors: STREET SMART REPORT ONLINE Sy Harding www.StreetSmartReport.com From: Asset Management Research Corp. Our 13th year of providing research to serious investors! Column for Sunday editions, February 20, 2000. BEING STREET SMART by Sy Harding THE SPIN DOCTORS. It?s not just Washington that puts its spin-doctors on the road when unexpected events threaten to derail a gravy train. Wall Street has an entire rolling fleet of spinmobiles, engines running and ready to roll at the drop of an economic number. Let a wage inflation number that might be a negative for the market come out at 8:30 in the morning, and at 8:40 they?re on all the financial networks explaining why the bad number is actually good. Let Alan Greenspan say a discouraging word, and Wall Street?s senior portfolio managers, senior directors of investment strategy, and vice-presidents of investment policy, are all over the media explaining to us what Greenspan really meant to say. Their ability to spin a story one way only to have events force them to reverse on a dime and spin the other way, is sometimes worthy of Barnum & Bailey?s center ring. Remember when Asian economies and markets were surging up in 1995 and 1996? That was wonderful for the U.S. was the tale the spinners spun. With U.S. consumers up to their necks in debt, all those billions of working well-paid Asians would soak up the products of U.S. corporations, allowing the long U.S. economic expansion to continue. Whoops. Just a year later those Asian ?tiger? economies collapsed, along with their currencies and stock markets. Their populations went from growing wealth to shocked impoverishment. Riots in the streets, over the lack of jobs, and soaring prices created by the devaluation of their currencies, were all over the news. Western countries went into emergency meetings. Multi-billion dollar contributions were made to the International Monetary Fund so it could rush to Asia?s rescue with huge bail-out packages. The U.S. stock market started to decline. Bad news, right? Not at all. Wall Street?s spinmeisters spun on a dime. It was not a strong Asia that the U.S. economy needed after all. Collapsed and weak economies in Asia was what was really needed. That would hold down the cost of parts U.S. companies purchased from Asian producers. Since forever, Wall Street?s spin has been that earnings justify and determine stock prices. Low price/earnings ratios identify stocks that are presenting buying opportunities. High price/earnings ratios identify stocks on which profits should be taken. But what to do in 1995, when the bull market had lasted so long that virtually all stocks were selling at high price/earnings ratios? The S&P 500 and Dow were selling at record high P/E Ratios just as a whole generation of new investors was becoming interested in the stock market. Tell them that stocks were overvalued and should be sold not bought? Not hardly. Send the spin-doctors out. Tell investors it?s a new era. Earnings no longer matter. They can better judge a company by whether its sales and market share are growing. If that?s happening earnings will come later. (Or not). So, if valuation levels no longer matter, how will we know when a major market top is near? Well, they said, you probably won?t have to worry about that for many years. But the most important thing to look for would be if the broad market begins to deteriorate. If the majority of stocks were to begin quietly declining even as the indexes like the Dow and S&P 500 continue to climb, such a negative divergence would be a bad sign. But, (this was in 1997), there?s no sign of anything like that. This is a broad-based rising market. No longer. Since 1998 the majority of stocks in the broad market, as traditionally measured by the Advance/Decline line on the New York Stock Exchange, have been in persistent decline, even as the Dow, S&P 500, and NASDAQ have made numerous new record highs. A classic negative divergence. Recently it?s even been realized that a negative divergence has been this severe and lasted this long only twice before in this century, once just before the 1929 stock market crash, and again just before the severe 1973/1974 bear market. Bad news for the market? Not at all. The spin doctors are out in force. From some the spin is silly. It really isn?t a negative divergence. Twenty-five percent of the stocks on the NYSE are preferred stocks and closed end mutual funds. If you just take them out of the index, the Advance/Decline line would not be down. Why would you arbitrarily take them out this time? Well . . . The other spin is that it is indeed a serious negative divergence, but it?s actually good for the market. After all, it?s put a lot of stocks on the bargain table. But, wasn?t that also true of the previous negative divergences, and they resulted in serious market corrections? Well . . . yeah. Like Washington, Wall Street has always been able to cook up a theory to make any negative situation appear to be a good thing. As with Washington, the spin usually only delays the inevitable. Recognize that and you?ll have a better chance of staying ahead of them. Sy Harding is president of Asset Management Research Corp., publisher of The Street Smart Report Online at WWW.StreetSmartReport.com, and author of Riding the Bear - How to Prosper in the Coming Bear Market. Back to the Top Home Copyright ¸ Asset Management Research Corp. -- ALL RIGHTS RESERVED.