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My forecast for 2000:
GDP will grow 2.5% next year on the back of an accelerating Asian phoenix. Many U.S. based multi-nationals stepped into the breach in 1999 and positioned themselves in places like Japan, Thailand and South Korea. Blue chips such as Caterpillar, Coke and Merrill Lynch will do well in 2000.
However, the cost of money will increase as Greenspan hikes once again, and 1999's 50 basis points kick in. The Euro Feds will raise rates as well, repealing the cuts arising from the Asian contagion.
Housing starts will slacken but continue at a rapid pace as the thirst for Mac Mansions continues. The supply of building material will catch up with demand and paper profits will provide a feeling of endless prosperity. In most parts of the country, the developers won't get ahead of themselves. The empty offices in the late 80s are still fresh in their minds.
The same is true for the financials. The S&L crisis has yet to fade into a generational change. The banks will be sound, so you'll have to look elsewhere for the next disaster.
Deregulated utilities will continue to merge, creating robust profits and solid dividends for brave buyers--for brave you must be to buy into the Y2K fear that billions of switches might provide real fireworks on the electric grid on January 1, 2000. Still, Taipan recommends that you buy this dip.
No fear!
The Market for 2000 is a Roosevelt speech--you've nothing to fear but fear itself. If 1998's Asian contagion was bad--shouldn't the opposite be true? One more inflationary hurdle, a Y2K disaster, and whatever religious cult nuclear nightmares you care to banter about. The apocalypse is not near and the January effect will be tremendous.
The Dow Jones Industrial Index has risen at a 14 percent annual rate historically, and a 22 percent annual rate in the nineties. Another 14 percent growth in 2000 will give you a Dow in the tightrope range between 12,000-12,500. Barring a major situation like the resurgence of trade barriers or a hot war, it's a target that seems realistic, and I will stick with it.
That said, the Dow is not the place to put your money. There are more profitable places to invest in the year 2000 and other trends that are worth following. But more on that later.
Y2K, the trade deficit, high valuations and raising interest rates
As I write this (and remember, to reach you before the 1999 holidays, this book had to go to print on November 19), the U.S. market is undergoing a tremendous autumn rally triggered by a number of specific macro situations.
In part, foreigners believe that their money is safer in the U.S. than it would be in their own countries before the Y2K wreaks havoc on the ill-equipped. Secondly, those in the U.S. who have been holding cash for fear of Y2K have replaced their trepidation with greed, the insatiable desire of being involved in a flying tech market.
After something does happen, or perhaps doesn't happen, on Jan. 1, that foreign cash will repatriate for fear of rising rates, a falling dollar, and better opportunities at home. The flip side of the "buy blood" philosophy is that you want to sell when the optimists are having parades and interest rates are rising.
Brother, can you spare a 125% equity mortgage?
Since domestic savings rates are negative, and foreign capital will seek better values in Europe, Asia, South America, and even South Africa, foreign investors will require a higher return on capital--thus higher rates on U.S. T-Bills.
Furthermore, due to the continued rise in the trade deficit, and falling bond prices, the U.S. dollar will continue its slide against the yen and euro. And since commodities like oil are priced in dollars--a falling dollar and inflating commodity prices (due to the demand from emerging market economies) will accelerate the economies of commodity producing countries like Indonesia, South Africa, and Chile. Next year will be a year of the emerging market.
Taipan predicts that after a lackluster 1999, the broader U.S. market will rise marginally due to continued positive world economic environment. There will be a massive Internet shakeout and a return to small cap value.
Kiss your mama at the bus stop--Dot.coms will be taken to school
In late February or March, there will be a third and catostrophic Internet shakeout. This collapse of the Internet mania will be lead by Amazon.com--which will report record earnings based on a blow-out Christmas, as well as record debt due to the fact its business plan is absurd.
Futile attempts will be made to save the company by press releases. Investors will sell their shares like a refugee sells furniture. Hold the dot coms now for a psychosomatic rally after Christmas but get out before the Q1 numbers are reported!
This Internet shakeout will enable us to pick up the companies with the real business plans, the ones that actually can use this new communication technology to turn a profit with high margins and low costs. Taipan believes that these companies will be in the e-commerce business to business arena.
Please read on...
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