For Lehman Brothers Inc's chief investment strategist, Jeffrey Applegate, the Federal Reserve's interest-rate cut last week in the US was the signal to plow money back into computer-related shares, among the bear market's biggest losers.
The Fed's 12th reduction in the past 20 months sliced the overnight lending rate to 1.25 percent. That's below the 2 percent third-quarter annual inflation rate used by Lehman economists, meaning rising prices erode the value of cash holdings faster than interest accumulates.
"The magic of negative real rates is they cause economic actors to put cash to work, whether investors buying stocks and bonds or companies investing in their business," Applegate said. "You lose money in real terms for holding cash."
His call to boost holdings of technology stocks to 16 percent of a model portfolio from 6 percent contrasts with recent comments by Merrill Lynch & Co's Richard Bernstein to avoid computer-related shares.
Forecasts by companies such as Cisco Systems Inc, the biggest maker of telecommunications-networking equipment, and KLA-Tencor Corp, the world's largest maker of semiconductor- inspection equipment, that sales may fall this quarter didn't faze Applegate. He recommended buying both.
"The new level of real short-term interest rates," Applegate wrote in a note to clients, "is one associated with sustainable stock market rallies and profits recoveries" every time going back to 1969.
The last time real interest rates were negative for any length of time was the last three quarters of 1992. In 1993, the S&P 500 climbed 7 percent.
The cost of borrowing is now far enough below the rate of inflation to prompt companies to increase capital spending and investors to put more cash into stocks, Applegate said.
When the spread between capital goods and labor costs has been greater than minus 5 percent -- it is minus 5.3 percent now -- information-technology spending historically has grown over 20 percent, according to government data from the past two decades, Applegate said.
Investors have lost plenty holding technology stocks the past 2 1/2 years.
While the Standard & Poor's 500 Index has lost 23 percent so far in 2002, the benchmark's Information Technology group lost 37 percent, second only to utilities. The technology stock index has lost three quarters of its value from the March 2000 peak, the most among the 10 groups the constitute the index.
In April 2000, Applegate's model portfolio was 80 percent in stocks -- half of those in computer-related and telecommunications shares. In April 2002, he said technology shares were as much as 35 percent overpriced, advising investors to keep 8 percent of their stock holdings in that industry.
Now, he said, the turnaround in technology may be at hand.
The latest GDP report showed technology spending is growing at an 8 percent rate over last year. In the third quarter, the S&P 500 Information Technology group exceeded Wall Street analysts' consensus IPS expectations by 18 percent, the best of the 10 groups.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique