Not out of the woods yet

It’s always nice when the markets end the week on a positive note. It makes the weekend golf games, or picnics, or whatever that much more enjoyable. No need to fret about your investments. The world has righted itself.

Certainly, last Friday’s (Aug. 24) explosive upward move on all the North American markets was impressive. The TSE added almost 88 points to end the week with a gain of 1.7%. The Dow leapt 194 points, for a 1.8% total advance over the five trading sessions. Most impressive of all was the performance of the Nasdaq Composite, which gained almost 74 points on Friday for an overall jump of 2.7% on the week. Could it be the signal that high tech has finally bottomed out?

I wish I could be that sanguine! Unfortunately, I expect we’re in for a lot more volatility in the coming weeks. There is still too much uncertainty in the air.

Actually, Cisco really didn’t make a bideal of this. The news was buried in a press release dealing with a major corporate restructuring. All that John Chambers, president and CEO, actually said was: “We are making these changes at a time when we are beginning to see signs that our business is stabilizing. Although we can’t predict the future, our orders for the first weeks of this quarter are in line with the expectations we discussed in our fourth quarter earnings call.”

And what did they say then? Revenue flat to down 5%. Hardly seems like the kind of story that would send the markets skyrocketing but there’s a lot of straw-clutching going on these days. As Martin Hutchinson, business and economics editor of United Press International, caustically remarked in an analysis written from Washington: “Phineas T. Barnum would have loved this market; the suckers want to believe SOOO badly! — or is he alive and well and working at Cisco?”

Some analysts interpreted the statement as meaning the slump in the high-tech sector was finally coming to an end. That’s why investors reacted so strongly.

But they’ll react just as strongly in the opposite direction at the next hint of bad news.

Too early to rejoice?
Why am I not in a rejoicing mood yet? Just look around. Europe is struggling. Japan is in recession and the Nikkei is testing new lows. Industrial production in North America continues to lag. The technology sector shows no sign of snapping back to life, despite Cisco’s effort to put a brave face on things.

So far, we here in Canada have been spared the worst of the global slowdown. But how much longer can that last?

It seems that every 10 years or so, the world decides to collectively pause and catch its economic breath. We went through a major downturn in 1969-71. Recession hit again in the 1980-82 period. We saw yet another repeat performance in 1990-92. Now here we are again.

So what conclusions do I draw from all this? There are three.

1. Interest rates are going to fall further, perhaps more than anyone expects. Bonds look pretty good right now, especially short and mid-term positions.