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Portfolio strategy update Greenspeak David Gottstein
Editor’s Note: The following column was compiled in early March. David Gottstein is with Dynamic Research Group in Anchorage. Alan Greenspan has decided to become a politician first and a monetarist second. He likes his job and his place in history. He has earned the respect of the financial community around the world because of his insights and leadership. He has played an important role in not having the government stand in the way of the great technology and productivity boom that has and which continues to take place. The world has a lot to thank Mr. Greenspan for.
On the other hand, now Alan has to answer to the son of the man he helped defeat eight years ago with his tight monetary policy born recession.
Remember, “It’s the Economy Stupid”. If he doesn’t want to retire in three years or less, I feel certain Greenspan had to give the new president his assurance that he would not fight his tax agenda.
So along came the genesis of what is now an orchestrated public acknowledgement by the Fed Chairman that we are safe to proceed ahead with a big tax cut before we pay down the debt, or solve long term Social Security funding.
The President now needs government economic stimuli to help slow down the recession that, in part, was deepened by his bearish campaign rhetoric. Perhaps, conveniently timed to push for a big tax cut for the wealthy as an answer to a slowing economy.
What this all means is that we are likely to continue to have an accommodating Federal Reserve until we are back on a solid growth track, and there is the absence of any real signs of inflation. This means further rate cuts.
The recession isn’t over, and it may not be for three to nine months. However, the deceleration and perhaps negative earnings growth comparisons bottom is likely to be passed in this time period.
Therefore, we are likely to enter a phase of rising earnings and low interest rates in the not too distant future. With the huge sums of money flowing into money market mutual funds waiting for an investment opportunity, we may be seeing the seeds sewn for another leg up in the markets.
On the other hand, the economy may further weaken, with earnings falling further before things get better. Is the bear market in technology over? There will be many companies, good solid ones at that, that will continue to suffer with 10, 20 and 30 percent further price reductions. There will continue to be big winners and losers in this highly speculative arena.
We think the time to get into the big technology stocks is either before they get big, or after there is blood in the streets. Since for most of us the likelihood of the former is remote, we must rely on what appears to be the current circumstance.
Today we are going to suggest re-entering the technology sector very selectively into three great companies that have real products, real profits, and a real business model, and which all are off between 60-80 percent from their highs. Although they may not be at their bottoms yet, they all represent bargains in any event. Those companies are EMC Corp., Oracle Corp. and i2 Technologies. Enter with caution We are maintaining an 85 percent invested posture this month. We are still significantly participating in any upside potential, but are reserving a bit as both a defensive position and an opportunity to take advantage of any future corrections.
Good luck this month.
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