Saturday, October 27, 2007

Tech's Resurgence

It seems as though investors are realizing a great rotation has been underway over the last year, as money continues to move out of the real estate and financial services sectors and into the health care and technology sectors. Due to the collapse of the mortgage and housing markets, financial services companies replete with CDO's & CMO's are writing down these assets with regularity. As a result, investors looking for returns are rotating their money into tech stocks with a fervor.

Commodities, which have enjoyed a boom along with real estate in recent years are still flying high, but oil prices seem to be getting ahead of themselves and may be headed for a bust. Even though oil has rocketed to $90.00 a barrel recently, the price of gasoline at the pump has barely budged since Labor Day. This leads me to believe there is a great deal of speculation in the oil futures markets and some of these high bidders may be left holding some very expensive contracts, especially if there is a milder than usual winter.

While the resurgence of technology has lifted the NASDAQ 100 by roughly 25% year to date, it is important to point out some research by Doug Kass of Seabreeze Partners, which was featured in Alan Abelson's Up & Down Wall Street Article today. Kass reminds us that 50% of the gain in the NASDAQ 100 was provided by three stocks. These stocks were Apple, Research In Motion and Google. His point in the article was that this is a very narrow bull market in tech and may not be sustainable.

While money will undoubtedly continue to pour into technology over the next year, I feel it is extremely important to point out that much of the advance in technology has already happened. That is why I continue to advise my clients to be diversified in various sectors of the economy. If you have a diversified portfolio, you would already have investments in the tech sector and would have enjoyed the full gains to date and not be trying to play catch up.

Of course there are those who feel there is quite a bit of room for the technology sector to continue to boom going forward, as consumers continue to snap up computer game consoles, flat screen TV's, notebook computers, MP3 players, cell phones and digital HD recorders. Corporations are also trying to harness advances in technology, such as blogging, instant messaging and e-commerce and use them to improve communication and productivity. This will require continued IT spending into 2008.

Paul Wick, manager of the Seligman Communications and Information Fund, when commenting on technology returns topping the broad market's performance said, "This might be the start of a trend". It has been six years, but it seems as though the bitter memory of the dot com bust is finally fading. I just hope the lessons of chasing returns and diversification of assets are not forgotten.

John Kaighn

Jersey Benefits Advisors

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