Betting on the Net

Betting on the Net

Too bad this investment outlook doesn’t look a millennium ahead. Predicting the next 1,000 years is a breeze compared to predicting the next 12 months. Anything you say sounds plausible, and no one will ever know whether you were right, or wrong! A one-year forecast, by contrast, is tough.
What follows is the latest thinking from the best minds in business. Although they don’t get it right every time, you can study their ideas to improve your investment savvy. Or, if you think you know better than forecasters, you can bet against them. Either way, you can’t lose by staying abreast of what the smart money is saying and doing.
Now, on to the forecasts. The big story of 2000 will once again be technology. Technology -especially the Internet- was the way to get rich in 1999. As we close the books on 1999, it’s clear that the boom in corporate profits will continue. Which industries will be on the upswing and which companies have the best track record? Look for wireless communication industries and solid technology companies. Generally, stocks that do well one year will continue to shine the following year. This simple strategy produced some notable picks last year.
Tech-stock mutual funds doubled in value. Initial public offerings turned quite a few into overnight billionaires. Will tech stocks keep soaring? You can survey the debate in stories about the technology policies. Most of savants say you can still make money in the tech stocks if you buy selectively. Companies primarily from the electronics, computer, and telecommunications industries are hot bets nowadays. The online revolution is gaining speed outside the States as well. Asian and Latin American tech stocks are heading for a boom.
If Net stock prices are more than you can stomach, watch those “non-dot.com” companies that are making a bundle by providing Internet players with essential equipment or services. Before betting against the Net, just remember that the biggest losers of 1999 were the naysayers: short-sellers, those who bet on low-priced “value” stocks, investors who shunned stocks in favor of bonds. Will 2000 be the year they finally turn out to be right?

Low interest rates, the recovery in emerging markets, and a long-awaited pickup in household spending are lifting euro-zone growth

A Decent Year

The pace in 2000 will ease back because higher interest rates will temper spending on interest-sensitive items, such as housing, consumer durables, and business equipment. Another reason is that high oil prices will cut into household buying power. The economists see inflation at 2.4% in 2000, based on the consumer price index, down from the 2.7% expected in 1999. They believe productivity gains will offset growth in compensation and that global competition will limit pricing power. “Our success in getting inflation rates down stems from the cost-cutting zeal of new-era corporate managers. Faster global growth will reinforce that zeal,” says an economist.
Economists think healthy economic growth, a rebound in foreign earnings, and a levelling off of the dollar will support profits in 2000. It would be wise to expect a decent year for earnings, especially for leading-edge areas of technology, telecom, and the Internet.

Emerging Asia

Wage growth slowed in 1999 as a result of a collapse in inflation expectations in 1998. Falling oil prices lowered consumer inflation in 1998, resulting in higher real wages in 1999, even as wage growth slowed. Now, as the doubling in oil prices since the end of 1998 has pushed up inflation, cost-of-living adjustments have moved up, and the small pay gains of the past year look less appealing to workers. Also, companies must increasingly offer other pays, such as bonuses and stock options, in order to find and keep workers.
Around the globe, look for emerging Asia to continue to recover, although Japan will provide little support, as it struggles with a mountain of uncollectable bank loans and weak domestic spending. The upturn in Europe will kick into a higher gear. Germany will finally join the recovery in most of the euro zone, and outside the Continent. Britain already has a full head of steam. Low interest rates, the recovery in emerging markets, and a long-awaited pickup in household spending will lift euro-zone growth to 2.8% in 2000.
In the Americas, Canada continues to feed off a strong U. S. economy and a recovery in commodity prices that will boost key resource-oriented regions. Plus, Mexico may post Latin America’s best growth. Mexico is expected to draw sufficient foreign direct investment to cover its expected current-account deficit. Elsewhere in Latin America, growth will rebound, as Brazil and Argentina recover from recessions. Brazil’s turnaround will be solid but unspectacular, as interest rates, now about 19%, retreat slowly. But inflation is expected to stay under control, despite the sharp currency devaluation in early 1999.
Many economists believe that the global financial crisis spawned by the 1997 Asian meltdown was a major disinflationary event that restrained U. S. inflation even as the economy grew at a 4% pace. Year 2000 will prove to be a major test of the notion that the economy’s speed limit is higher than 3%. But if the forecasters are right, this record-breaking expansion will keep sailing along in the new millennium.