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Now for some bad news
Analytical Surveys, Inc. (ANLT-NASDAQ), one of our Y2K drought/utility convergence plays, ran into some contract trouble--that is, they haven't been getting any. Q1 and Q2 of 2000 will be below analysts' expectations.
We are down considerably in this stock, more than 50%. However, it is going lower before it comes back. Sell Analytical Surveys at the market.
Can this rational exuberance continue?
In the November Taipan I advised that you purchase some hot B2B stocks which matched up nicely with my e-flation hypothesis. And yet again, my theory holds. Safeguard Scientific jumped 45 points in a month. Internet Capital Group skyrocketed over 95 points and VerticalNet more than doubled.
E-flation, she's a cruel mistress
B2B Internet stocks are benefiting from a peculiar set of circumstances, which I call e-flation. E-flation has three basic tenets:
- E-flation occurs when the big picture is so enormous that it defies traditional analytical methods. In this case, the e-B2B market is estimated to be worth US$1 to US$1.7 trillion by 2003. The total market capitalization of public B2B companies is less than US$40 billion. That's a huge difference in valuation. To put it another way--income doesn't matter.
- The top tier companies will win all of the marbles. NYSE is an effective market simply because it is large. The larger the market, the more gains to be had. Buyers find sellers and vice versa. More competition equals thinner spreads, equals more players. The most branded companies will reap the most rewards. E-Bay, AOL, and Yahoo! are previous models of this phenomenon.
- Thin floats. No supply plus over-hyped demand equals a rocketship. ICGE has a float of only 7 million shares. Most professional investors have to own some of these stocks if only for window dressing. If you want to short these stocks you have to fight the demand which will force the shares higher. This will happen until there are too many complaints about liquidity. The result of this high demand/low supply model is stock splits. I see at least three spilts in the future. And as we have seen over the past few years, prices inflate on splits.
Though the hype is starting to hit, and the news stories on these stocks are growing in number every day, I believe they have some run left in them. I believe these stocks will double again. B2B Internet will be next year's market fad.
Blood sport--Indonesia Telkom
In October 1999, Indonesia was on fire again--literally. In the summer of 1998, when the Asian contagion was cascading around the world, Indonesia was the worst leper of the lot. Cash stampeded out of the country, which labored under a crushing foreign debt load.
The Indonesian currency, the rupiah, was freed from its dollar constraints and tumbled from 3,000 rupiah to the dollar to 18,000--at which point trade stopped altogether.
Commodities, including oil, an Indonesian export staple, fell to 30-year lows. Massive forest fires ravaged the countryside and choked the cities with smog. Endless chaos seemed a certainty.
Dust biter
The Jakarta Stock market got whacked. The smart investors stepped into that chaos and bought long and deep because six months later the market rebounded. Some stocks like Indonesia Telkom were up more than 500%.
In October 1999, unrest in East Timor provided Taipans with a second opportunity to get in on an undervalued blue chip.
How quickly things change
Here we are, a short two months later, and peace has fallen over the land. A pseudo-democratic and popular government has been elected and the region seems poised to further capitalism, open markets and clean up corruption. The nationalists and the army are losing power.
Our pick, Indonesia Telkom (TLK-ADR-NYSE) has bounded back strongly--up 35% since October 1999--and announced strong third-quarter results based on its currency holdings.
 Jakarta stocks
But the run isn't over. Foreigners will continue to selectively buy blue chips as the new government progresses. In general the stock index will climb further next year, but it will tend to be flat to slightly lower in December 1999, due to millennium concerns. Taipan expects a major rally in all emerging markets post-Y2K as the effects of the dooms-day bug prove to be over rated.
Buying interest will be in blue chips including Gudang Garam (GGRM-JK), Sampoerna (HMSP-JK), and Telkom (TLKM-JK, TLK-NYSE). The rupiah will gain from its current 6,810 to the dollar to 5,200 by the end of 2000, as oil profits and a non-corrupt government rebuild the country's economic vitality.
I'm starting to believe that with the re-inflation of Asia, the rise in oil prices and the increased democracy in Indonesia--TLK could return to the high teens to low 20s by next fall. But beware, risks include civil war.
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