John Edwards' Chat on AOL

Our own markets editor chats about the bond yield, the euro and IPOs.
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John J. Edwards III chatted on AOL MarketTalk on March 1. AOL's MarketTalk is hosted by Sage Online (Keyword: Live).

Sage MikeM:

Welcome back to Sage Online's Market Insiders! We're happy to present John Edwards, markets editor for

TheStreet.com

- welcome, John!

J EdwardsX:

Thank you, it's great to be here!

Sage MikeM:

John, what is causing the drop in bonds, and how far up do you believe the yield will go?

J EdwardsX:

The bond market is reacting to the continued remarkable strength in the U.S. economy. There's a perceived danger that the economy is so strong that it could overheat and require the Fed to raise interest rates. Bond traders are trying to stave off a Fed rate hike by essentially beating the Fed to the punch. The idea's that the market itself can raise rates enough to slow the economy and make a formal rate hike unnecessary.

Sage MikeM:

Do you share that perception of the danger in higher Fed rates?

J EdwardsX:

I think if the economy continues at its current torrid pace it is definitely possible that the Fed would feel it necessary to boost interest rates to head off inflation -- although it probably won't be anytime very soon, because, despite the hot economy, we're not seeing signs of increased inflation yet.

Sage MikeM: DLJ

downgraded

Intel

today. Is that the consensus of analysts?

J EdwardsX:

The Intel downgrade is not yet the broad consensus of analysts, but the move does reflect the concerns about the course of growth in the PC industry.

Sage MikeM:

What are your thoughts on IPOs, in general. Many are Internet related. Do you see them, generally, as safe territory for investors?

J EdwardsX:

I would see IPOs at this point as being an area that investors should approach with caution. Investors who look at IPOs as a way to make a quick profit are generally looking at the huge first-day price gains. But it's important to note that ordinary investors can almost never get into IPOs at the offering price. That's usually reserved for company insiders, people close to the company and people close to the underwriting brokerages. Individual investors often make the mistake of placing market orders for IPOs which are then filled at a price far above the price they were expecting to pay.

Sage MikeM:

TheStreet.com

has its own Internet index. How does its methodology differ from

Dow Jones'

two Internet indices and the Inter@ctive indices?

J EdwardsX: TheStreet.com Internet Index

is designed to be one of the better measures of pure play Internet stocks. We avoid stocks that are only tangentially or partially related to the Internet and try to focus on stocks that are really deeply connected to the Internet economy.

Sage MikeM:

Are the components listed at www.thestreet.com?

J EdwardsX:

Yes, the components are available on

TheStreet.com

. They can be found in our markets section and also by clicking on the links in our market index tables in our daily market stories.

Sage MikeM:

Turning to "the outside world," do you believe we will see additional global economic problems like last fall?

J EdwardsX:

There's always the possibility of a resurgence of global economic problems. They seem dormant at the present time, but certainly it would be important for investors planning to invest internationally to do very careful research ahead of time and a lot of helpful articles can be found in

TheStreet.com's

international section.

Sage MikeM:

Has

TheStreet.com

recommended some continents or countries over others?

J EdwardsX:

TheStreet.com

doesn't make direct investment recommendations but our reporters have given close coverage to events surrounding the introduction of the euro in Europe and to the Asian economic crisis and partial recovery.

Sage MikeM:

Do you foresee the euro causing tension between the U.S. and Europe in the years to come?

J EdwardsX:

There almost definitely will be some tension between the U.S. and Europe as the world's markets sort out whether the euro might become the world's reserve currency. At this point, that seems unlikely, at least for the near term, but the introduction of the euro and the increased unification of the powerful European marketplace is going to be a significant challenge for the U.S. in the 21st century.

Sage MikeM:

A trial balloon was floated a month or so ago concerning a common North American currency. I believe the

Clinton

administration's reaction was "maybe in 100 years." Do you foresee a common NA currency?

J EdwardsX:

It's not something I'm aware of being actively discussed as a near-term possibility. I think that U.S. policymakers are satisfied with the dollar as a strong sovereign currency and simply don't see the need to link it with the less stable Canadian dollar and Mexican peso.

Sage MikeM:

Sovereign currencies can cause problems for nations -- are we immune, or could some catastrophic event lead to more economic union?

J EdwardsX:

It's impossible to foresee a catastrophic event -- which is what makes them catastrophic when they finally occur. But certainly we can never rule out the kind of earth-shaking event that would lead to wholesale changes such as a currency unification or other steps.

Sage MikeM:

Okay, I'll move back to Earth. Many investors chase stock splits. Does an analysis of past stock splits suggest this is a wise move?

J EdwardsX:

An analysis of past stock splits I believe would show that while there's often a short-term trade to be made on stocks that split, a stock split by itself is not necessarily a recommendation for long-term investing. However, you'll often find that companies that split their stock do so because of confidence that the company is strong and should attract additional investments. So it's rarely a negative factor but it shouldn't be the only positive factor an investor uses in making an investment decision.

Sage MikeM:

How does the remainder of 1999 look for the oil sector?

J EdwardsX:

I would say that 1999 looks uncertain at best for the oil sector. There are still lingering concerns about oversupply in the sector, and prices seem unlikely to recover markedly in the very near term.

Sage MikeM:

Thank you, John Edwards of www.thestreet.com! It's always a pleasure. Please come back soon!

J EdwardsX:

Thank you! I'm looking forward to coming back!