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    Investment Views  (August 2nd 1999)

     

    Instead of writing my clients individually I thought I might as well
    do a weekly summary of my views on the markets, the currencies,
    the economy, the world, and life in general.

    Postcard from Vienna:

    We had a wonderful week in Vienna.  The city is a living museum.
    It is so wonderfully civilized that one has the feeling to be living
    in another age, when life is less hectic and more romantic.  Make
    no mistake though.  Vienna has its homeless population and drug scene
    too.  But otherwise it is culturally so much alive and beautifully maintained.
    We enjoyed sitting in the cafe houses, walking around the historic
    Graben and going to Opera at the evenings.  But most of all we enjoyed
    the Sunday mass at the Augustinerkirche.
     


    Markets in General

    The markets began to correct after the Greenspans testimony the week before last, stating
    the Fed's intention to raise the interest rates anytime, when necessary.  The markets had
    celebrated the neutral bias of the Fed too soon.  So the markets began correcting in a hurry.
    Friday the Dow closed substantially below 10800, because of the rise in the labor cost index.
    The market has now corrected more than 5%.  We do not really expect the market to
    correct more than 7% from its all time highs, even though the level of general pessimism
    is high.  (i.e.  We expect the market to correct to about 10500 on the Dow).  But we expect
    the market to remain jittery until the August Fed meeting.  Anyway there will be strong
    support around the 10000 level.

    The 5000 level support on the Dax has not been broken.  If New York had closed
    friendlier on Friday, the market would have been ready to recover somewhat.  So
    we will have to wait until Monday to see, whether the European markets are finally
    diverging from the US markets.  But because of the weakness on the Wall Street,
    we doubt that the European markets will have much upside.

    The SMI had recovered nicely on Friday closing above 6880.  But at the close
    of the Swiss market, the Dow was still on the upside.  Indeed, the SMI probably
    had expected the Dow to close positively on a Friday.  So now Monday is
    again critical.  If the SMI retreated below 6800 again, we expect the market to
    test the 6600 level again.

    Go to Index


    Stocks

    Our favorite stocks remains SAP, Nokia, Raisio Group, Ericcson, Cable and Wireless, Orange
    and Bachem.
     
     
    High of the Year Low of the Year Stock Last Week's 
    Close    		 Daily high Daily low This Week's Close
    8489 5108.30 SMI 7077.20 6887.40 6717.40 6887.40
    SFr. 2300 1351 Bachem 2345 2300 2252 2252
    Gbp  9.85 4.67 C&W 8.15 7.78 7.47 7.58
    E 174.80 126.60 Cap Gemini 168.70 160.30 155.80 159
    SFr.  51 25 Ericsson 45 48.25 46.75 48.25
    E 253.90 169.70 LVMH 284.10 266 260.30 265.50
    Sfr.67 37 New Ventur 64 64 61.25 64
    E.79.50 52 Nokia 95.39 81.60 79.10 81
    Gbp10.75 2.40 Orange 10.04 9.84 9.51 9.80
    E.  11.80 5.30 Raisio Group 11.95 11.45 10.90 11.25
    Gbp6.38 4.21 Reed 4.67 4.79 4.63 4.71
    SFr.  607 420 SAP 550 504 484 495
    E 19.22 12.40 Sonera 23.20 23.65 21.75 22.60
    SFr.  513 436 Syn-Stratec 501 505 494 501
    SFr.649 496 Swisscom 554 538 527 533
     

    Reed Elsevier had finally found a new CEO.  The stock of Reed International joined the relief
    rally the market felt.  But the down draft of last week was too strong for Reed to hold onto
    its gains.

    Nokia's net profit increased by more than 70%.  But somehow that news was already factored
    into the market.  We saw Nokia price tumbling last week.  We would add to our Nokia position at
    the present price level.  We're convinced that the mobile telephony market is still a growing
    market world wide.  Nokia has shown itself to be tough and nimble in the competitive
    market.

    Go to Index


     Currencies 

    The dollar finally started to correct with a vengence.  After a high of SFr1.5890 the
    dollar is now back to the 1.49 level.  Now it is important that the 1.48 level hold.  Other-
    wise we see the dollar tumbling further downwards.  The dollar traditionally corrects
    in the summer and continue its downward movement until the end of the year.
    We have no doubt that this year will not be any different.  The only difference
    is the magnitude of the fall.  We feel that with the US economy still strong, the
    dollar should stay above the 1.40 level.
     

    Go to Index
     

    Future Trends

    The internet will transform our world in a massive way.  I think it is time to
    begin and do some thinking on what kind of change it will bring and see if
    we can draw some conclusions that are relevant to our investment decisions.

    First, as we have opined in this column we do not believe many of the today
    sky high internet stocks will eventually make a lot of money.  The internet
    is such a competitive forum.  The pricing pressure is so great so that only
    providers with Brandname recognition and meaningful contents will be able
    to have some pricing power.  We must remember what the internet eventually
    will bring is absolute international competition.  Price competition will be fierce.
    Middle men will be eliminated.  Therefore we see many service sector jobs
    will be eliminated.  For example, we see this trend in the financial sector already.
    More and more people are trading stocks on line.  With internet brokerage
    charging less than $10 per trade, we should see brokers and financial advisors
    being eliminated at major brokerages in a big way soon.  The same should
    happen in other tradable items.  For example, there will be less need for
    retail stores for items that one can buy easily on the internet.  Of course
    there will be branches of the economy that will profit.  For example:
    the telecoms, the Federal Expresses, and the computer software industries.
    But the question is: Will the general economy really profit or will the general
    deflationary trend continue and become worse and worse?  Without pricing
    power and with lots of jobs being eliminated and salaries on hold, we see
    the world economies trending toward deflation, even if it continues to grow.
    That means real estates and gold will become even less appealing.  If we
    believe our argumentation, we would not invest in the "internet" stocks
    themselves but in the companies that do have contents and pricing power
    as well as companies that will offer services to the internet providers
    and users: ie.  companies such as Sony, Time Warner, Dow Jones, and
    Federal Express. We would also recommend the stocks of Corsair (CAIR),
    Qualcomm, Ericsson, Nokia, the equipment and software provider for the CDMA,
    the next wireless telephony standard as well as stocks of telephone companies
    like Sonera, ATT, Worldcom-MCI, Colt Communications, and Swisscom.  We also
    see internet companies needing ever more sophisticated software.  Therefore
    we're quite optimistic about the long term future of the likes of IBM, Oracle,
    SAP and Cap Gemini.
     
     
    *The stock prices are provided for informational puruposes only and  not intended  for trading purposes.  The opinions expressed in these pages are what they are: opinions!

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