Excerpt from Future Tech Update July 18 2000
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Hello folks, it was nice to be off for a weeks vacation and doing
a little fishing. We are in the peak holiday time and midst of summer,
but I am afraid we are also near the end of the summer rally I spoke
of in previous updates. I don't see sure technical signs of a peak in this
rally, but I belief the market is running out of steam and good news
and any gains from current levels will be small.
We are past the earnings warning period and into the thick of 2nd
qtr. earning reports that should come in with an increase of around
23%. This is the good news and and is factored into the market. The
market will likely focus next on economic numbers, interest rate worries,
another record trade deficit tomorrow and I believe the real problem
that will become more obvious is inflation and America's 3rd energy
crisis.
The consumer price index rose 0.6 percent last month, well above the
0.4% expectation and at a 5% annual rate, as usual the market bulls
and media commentary likes to focus on the core rate at a more-modest
0.2%. Most surprises for the market in the next 6 months will likely
be ugly inflation data.
Afterall, Goldilocks wants to believe the energy price problem
will go away. The media focuses on OPEC and blames them for high oil
prices, but this has nothing to do with natural gas prices that have
doubled or brownouts in California because of electricity shortages.
Silicon valley tech companies are now planning to build their own
power plants.
The mania focusing on the tech and internet side of the market has
neglected the resource/commodity side. There has been a general
expectation that low priced commodities would be available forever.
Low commodity prices and lack of investment has meant no new
development on the supply side while demand has been exploding in the
U.S. economy and now also picking up in the global economy. I
commented back at the time of the Asian crisis that oil prices were
forced down, this was one of a number of government actions to try and
stimulate demand to recover from the brink of collapse at the time. We
are now beginning to pay the price for this. I believe over the course
of the next few years we will see explosive prices in most commodities
as the world is simply running out of them. What we have seen with
energy prices and PGEs will repeat itself with other metals, foods
etc. You cannot build your economy in cyber space forever and neglect
basic needs.
What this means is a lot more inflation is in store, higher interest rates
and a recession on the horizon to bring things back in balance. The only
question is how high inflation and interest rates will have to go before
a recession begins. Booms most often end in Busts.
Other factors
The U.S. employment cost index has been heading steadily higher, now
over 4% and at levels not seen since 1991. This is even more
significant when you consider the much larger role that options play
today in wage compensation and this is not factored into employment
cost. This is another factor that will be pushing inflation.
The government also reported that retail sales rose 0.5% in June,
stronger than the 0.3% that economists were expecting. Factoring out
auto sales, retail sales rose 0.2%.
Money and credit is growing at a rapid pace. Private sector credit has
accelerated to a cyclical peak of over 15% in the past six months. Too
much money is chasing too few goods, pressuring prices.
On a more brighter note, the Canadian market is far out performing the
U.S. and this is as expected from my year beginning outlook. The
resource sector will continue to shine and this will mean a better
performance for the TSE 300. I have been critical in the past on how
one stock, Nortel has been mainly responsible for the rise in the TSE.
The good news is with recent gains the TSE 299 (less Nortel) has now
recovered to its level at the peak in April 1998. In other words,
Canadian investors have now recovered from the bear market that began
in April 1998. If your Canadian portfolio is basically even over 2
years you have been keeping pace with the market.
Besides the bursting of the tech and internet bubble, the poor
inflation/interest outlook, we have had major scandals in the market.
This will not help retail investor confidence, who for the most part
are sitting on huge losses, paralyzed, hoping for a rebound in their
holdings. I have seen this situation before, the long term results are
not pretty, another reason to take profits.
In Canada, the OSC has moved against RT Capital Management, the
countries largest fund manager and 22 individuals including senior
executives for manipulating stock prices in 26 stocks.
In mid June, 5 organized crime families controlled a number of NY
brokerage houses, used to carry out massive securities fraud on 19
Nasdaq companies defrauding investors for $US50 million, involved 30
insiders of companies, 57 brokers and 12 stock promoters, the mob
acquired cheap stock, brokers were bribed to drive up stocks.
Many inexperienced retail investors while looking at their battered
portfolios, will come to the conclusion, that they have been had. This
will eventually mean far less buyers and more sellers.
With the above outlook, my goal has been to raise cash levels by
selling our tech and internet picks, while keeping investments in the
resource side and our hedge and non equity positions.
Research in Motion, RIM on TSE, RIMM on NASDAQ ..... Recent Price $94.00
Entry Price - $45 Cdn/US$30 .............. Opinion - sold at $Cdn 95.00
Original Entry Price - $7.25 Cdn
Date Hi Lo Cl Vol
20000718 T 98.50 92.25 94.00 -2.00 563324
20000717 T 98.00 90.00 96.00 +3.00 649874
20000714 T 95.25 90.25 93.00 +2.05 480347
20000713 T 96.25 89.00 90.95 +0.95 1025017
20000712 T 90.25 80.00 90.00 +11.95 1126125
Over the past few days, RIM has met our sell target of $95, a lot of stock
traded at this level and higher, so will be listed as a sell at this price.
itemus Inc. ITM on TSE Recent Price $1.68
Entry Price - $0.27 Opinion - sell
itemus Inc. was Vengold and the stock went on a tear when it turned
to an internet incubator. These type of stocks have really been out
of favor and since we are sitting on huge profits, it might be wise
to take them. We first took part profits at $2.60, so I will take
the average of that and todays price and list as a sell in Future
Tech at $2.10
A HREF="http://chart.canada-stockwatch.com/sw/chart.dbm?symbol=itm">Chart</a>
Stockgroup.com 'SWEB' on Nadaq OTC Recent Price $2.56
Entry Price $2.87 Opinion - sell $2.75 to $3
SWEB has moved up in the past week on promotion and a "strong buy"
recommendation from First Colonial Securities Group, a regional
brokerage in the Northeastern U.S. and an accompanying target price of
$14.
Date Hi Lo Cl Vol
20000718 Q 2.81 1.94 2.56 +0.81 331600
20000717 Q 1.84 1.73 1.75 +0.06 45800
20000714 Q 1.75 1.56 1.69 -0.05 61600
20000713 Q 1.81 1.44 1.73 +0.48 297600
20000712 Q 1.38 1.19 1.25 +0.06 143200
The company has increased its promotion budget, but has done a poorly
structured financing recently that could lead to a lot of dilution. Costs
are high and my analysis shows the business is poorly run. The stock
has always traded at a huge discount to its peers, but when you consider
the internet sector has been very weak, with major stocks like Amazon and
Yahoo making new lows in July, we are fortunate to be able to sell this
one at a decent price.
It looks like the stock could continue higher tomorrow, as long as the
market is on its side. You might try to get $3 or a small profit, depending
on your entry price
A HREF="http://chart.canada-stockwatch.com/sw/chart.dbm?symbol=q:sweb">Chart</a>
Eduverse, EDUV on Nasdaq OTC ................. Recent Price $0.75
Entry Price - $0.60 ........................ Opinion - hold
eduverse.com had news on July 18th when they announced that they
signed an agreement with Parlo.com, a Silicon Alley based e-learning
company, to provide its current English language games on the
www.parlo.com/games web site. Parlo.com is the premier provider of
language instruction and cultural exchange on the web. eduverse.com
and Parlo.com will work together to add additional language content to
existing eduverse.com game engines.
"Parlo.com's in-house expertise in teaching multiple languages allows
eduverse.com to use its technology as it was originally designed, as a
platform for delivering various distance education courses for
multiple languages," stated Mark E. Bruk, President and CEO of
eduverse.com. "We are extremely pleased to be able to extend the use
of our existing technologies to teach multiple languages."
"eduverse.com provides us with quality products that are designed to
meet our multilingual teaching requirements," stated Varun Bedi
president of Parlo.com. "We look forward to providing learning tools
that help users build their language skills in a fun way".
About Parlo.com
Parlo is the premier online destination to learn languages and explore
cultures. More than just a language site, Parlo dimensionalizes
language by providing a complete cultural experience via Virtual
ImmersionTM. Parlo has created a unique environment where members
personalize their experience by choosing from a comprehensive menu of
audio and visual learning tools to study and "travel" abroad. Parlo
students learn language, read magazine articles at their skill level,
sample foreign music, chat with native speakers and purchase language
and cultural products and services. This approach allows users to
guide their own study programs and experience language in a deeper,
more meaningful way. For more information, visit Parlo on the Web at
www.parlo.com.
Eduverse stock price has strengthened and I expect it could go higher.
Quite often in the past, the stock has moved opposite to the market,
perhaps a market correction will do it good. I am looking for news
that shows revenues will grow, EDUVs cost structure is modest compared
to most internets. I will look for profits above $1.00
Contact: Vaughn Barbon Tel: (604) 623-4869, (877) 623-4864
Email: invest@eduverse.com
<A HREF="http://www.eduverse.com">Web site</a>
<A HREF="http://chart.canada-stockwatch.com/sw/chart.dbm?symbol=q:eduv">Chart</a>
I will have some updates on other Fture Tech picks and opportunities |
