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No 2000/2 - December 5, 2000








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  Beware of Bargain-Bin e-Tail stocks: stop thinking Santa Klaus really exists!  

With stock exchange rates sometimes a hundred times lower than their highest level over the past 52 weeks, it is easy to understand why some people are trying to make a great deal.

All analysts will agree: this is the right time to do so. Even though the Christmas season might witness a small falloff in sales, it will still break all sales records this year.

Both factors tend to prompt a few investors to snap up shares of downtrodden companies.

Let's be clear: if this is only a game consisting in buying shares and selling them again a few months later as soon as the rate rises, why not… In that case, the Stock Exchange can be compared to a Casino and economic strategy does not really come into it.

On the contrary, if you aim at getting your money back a few weeks or a few months after you bought them, thinking that given the price you bought them, their value can only go up, you might well be in for a bad surprise.

Goldman Sachs analyst Anthony Noto predicts that by this time next year, only 14 out of the biggest e-commerce companies will still exist in 2001. What's more, half of them will have to raise cash before the 2001 holiday season if they want to remain in existence.

Considering how venture capitalists are presently getting cold feet when asked to invest money in the new technology sector, one might be right to fear this disastrous situation will not improve in the coming months.

In view of what happened in the last few weeks, we might say the situation is not very reassuring: Garden.com, Furniture.com, Streamline.com, MotherNature.com, Pets.com have all gone bust. As for PlanetRX and Egghead.com, these are two dot-coms that might not survive either.


What's more, a few established companies are presently phasing the shutdown of their activities a few months in advance, in a very unofficial manner, and as long as they still have enough cash in the bank, in order to avoid a bankruptcy that might prove too harsh.

That's why investors who have been stocking up shares that sell at a very low price today might well be very disappointed in a few weeks or months' time.

The "voluntary" and phased shutdown has become a real trade for some companies such as NetCatalyst.com that defines itself as a "Global Liquidity Engineer".

Among other trades, NetCatalyst provides companies that are looking for a final exit strategy the most efficient and effective means to attain such goal.

Sources : New York Times - SF Gate - NetCatalyst

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