Tech Themes of 2010, Reviewed
Assessing 15 statements and predictions made in January.
Broadly, I think this year will be dictated by the transition from a world where stocks only rise as the US dollar falls to a market where dollar strength becomes supportive of US stock prices (as well as China, Australia, and select emerging markets).
(I believe the above effect is happening though I think few, if any, would agree with this assessment yet. Therefore, this effect/transition could be in very early days and be supportive of US equities for years.)
Much of the media and negative pundits will continue to say that various financial government stimulus packages are the main reason that stocks and certain economic indicators/measures are rising, and until this prevailing sentiment shifts, the stock market bulls will likely be rewarded.
(This has certainly been the case thus far and I see no reason the rest of the year won't echo the above statement.)
I still see GDP growth and jobs improvement well above consensus, as I did last year.
(Looks good, and the I expect the "jobs tsunami" I've buzzed about to kick in during the March/April time frame and accelerate through the year.)
Interestingly, many government work programs will be put into existence and more real stimulus money will be infused into the economy than in 2009. Certain sectors are poised to benefit even more compared to the prior year and finding spillover-effect stock plays will provide notable alpha.
Finally, in my bailiwick (technology), web-based video (3-D TV?), bandwidth, and touchscreen technologies will come to the fore again as the promise of 2000 will become realized in 2010.
(Too early to see this yet, but I think we'll hear about a very compelling broadband stimulus package within weeks/months.)
1. Starting the themes with a master-of-the-obvious call. I see extremely low rates through 2011 -- with my range being 0 bps to 75 bps of tightening and my gut feel that we see the Federal Reserve remove its 0 bps to 25 bps funds rate and replace it with either a 25 bps or 50 bps (or a 25 bps to 50bps floating) funds rate.
This should continue to spur stronger-than-expected economic activity, so I'm sticking with my highly variant view (through 2009) of a stronger recovery and GDP growth than commonly expected while inflation remains benign.
(So far so good -- and I like the Fed's recent move on the discount rate.)
2. Even though we've seen strong stock performance out of the networking and data storage, I'm essentially repeating this theme from last year:
We already have approved a $45 billion to $50 billion government broadband and security infrastructure package that's ready to roll over the next few years. Networking, security, and strong ERP and data storage firms will benefit most.
The only changes I'll make are emphasizing networking and data storage firms and de-emphasizing security and ERP firms as they materially outperformed during 2009.
I think Cisco (CSCO), Broadcom (BRCM), EZchip Semiconductor (EZCH), and VMware (VMW) are names to note and are reasonably priced, but there are a host of others that will benefit greatly.
(All of the above have ramped meaningfully -- especially EZchip. We still have a "real stimulus" package in the wings and I see many reasons to keep a bullish eye on this sector and am constantly looking for more names.)
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