the be-all and end-all of the Internet. The companies that will be successful are the ones who can get the products out to the end users. That’s probably why the Fords have developed mass distribution networks and, on top of that, created phenomenal marketing capabilities and advertising. My backdoor play is shipping companies [like] Fed Ex (NYSE: FDX)-any company that is going to help relieve the bottlenecks in distribution.
Pearson: What we tell our clients is that if you’re going to invest in the Internet as a pure play, [buy] a company that’s going to make you money. So we want the AOLs, the Yahoo!s, the eBays and the Amazons. But you’ve got to buy a basket of them. We [are also] really big believers in a back doorway, and the back doorway has names like Cisco (Nasdaq: CSCO) and MCI WorldCom (Nasdaq: WCOM).
B.E.: Federal Reserve Chairman Alan Greenspan has voiced concern about an overheated economy stoking inflation. We have seen one interest rate hike this year. Will we see more?
Simmons: My take on interest rates will be that they will sort of hover around the 6% range, and only because you have an abundant supply of corporates. I don’t see another rate hike this year.
Pearson: We’ve had a current expansion now going on for 100 months. In another six months, it will be the longest expansion ever, period. We expect economic growth actually to moderate, over the next 12 to 18 months to go from a 4% kind of growth to a 3% kind of growth, which is what Alan Greenspan wants to see. So, there is no reason for him to tighten. There’s just no evidence.
Paige: It does seem like the Fed is basically a little ahead of itself. If something out of the ordinary should happen, it seems like maybe the Fed will raise rates. It has been 100 months, and inflation has got to come sooner or later. The value people want rates to rise to bring those growth stocks down, but I see nothing on the horizon that would indicate that rates need to go up.
Pearson: If interest rates go up, it’s going to kill the high P/E stocks, some of the stocks that I like. Basically, P/Es are like bond yields. They tend to move in opposite directions from interest rates. So, if interest rates go up, you’re going to have a correction. If we do, I would really encourage you to step in and buy some of these quality names, the good franchises and powerful stories that get hit 10% to 15% in a correction.
B.E.: How do you think the market is going to react to Y2K? Will it create buying or selling opportunities?
Simmons: I think you could see knee-jerk reactions. Companies are raising money early-just in case. I think there is going to be a lot of excess liquidity as a result. When you anticipate a crisis, generally it doesn’t happen. That has been my experience, and I think most people’s experience.