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    Investment Views  (January 10th 2000)
    Happy New Years!

    Markets in General

    I felt like an oracle when the market had reacted just as I had foreseen it.  The Dow
    and especially Nasdaq had corrected with vengeance.  But soon it was evident that
    as I had foreseen it, the market broadened and the Dow remained strong while the
    S&P as well as Nasdaq continued to correct.  On Friday the employment data
    came in as expected, and the markets proceed to rally.  We continue to feel that
    the markets will remain strong albeit choppy.  The general market should continue to
    recover, while the overvalued techs continue to correct.  We wouldn't be surprised, if the Dow
    proceeds to make higher highs.

    As I have pointed out long time ago, the e-retailers have shown themselves to be unable
    to make a profit.  The amazons of this world have no pricing power.   But there are still
    strong techs out there: the B2B internet stocks, the software and net infra-structure stocks.
    Although no one is making money on the internet, it is still paramount for all companies to
    present themselves on the net, if only to defend their brand image.  So we should see continued
    investment by companies of all sizes on e-commerce software, and internet infra-structures. And
    companies will have to get ready for the next wireless phone internet presence.  Therefore
    we wouldn't sell off all tech stocks indiscriminately.

    The Dax corrected fast and furiously.  It fell below the  6500 level within days.  But it also
    recovered on Friday by rising more than 300 points on the Dax.  (plus more than 4.7% on
    one day!)  We remain bullish on the Dax.  We should finally see some American and
    Asian diversification out of the US into Europe this year.  The European economic
    recovery has finally shown itself to have some staying power and the ECB has shown
    great restraint in raising interest rates.  Therefore the European growth is on track
    to accelerate this year.

    The CAC has been hit by profit taking.  Paris had a great run last year.  So profit taking
    is not surprising.  We expect the CAC to under perform the Dax this year.

    The SMI is still stuck in a tight trading range, but it has exhibited some relative strength.
    The SMI did fall more than 4% on Tuesday, but afterwards the support at the 7160
    remains very strong.  Quite a bit of institutional buying came in at the low of Wednesday
    around the 7110 level.  So we never looked back since then.  On Friday the market
    rose more than 2% back to the 7448 level.  The critical level to watch is the 7550 level.
    Up until now, the SMI hasn't been able to overcome resistance at the level.  Since
    we gapped down at the 7500 level on Tuesday, it will be quite important that the
    market recovers strongly above the 7550 level on strong volumes.  Otherwise we
    remain stuck in a trading range between the 7100 and 7550.

    Go to Index


    Stocks

    Our favorite stocks remains SAP, Nokia, Ericcson, Cable and Wireless, and Orange.
     
     
    High of the Year Low of the Year Price and year of recommend.  Performance
    since recommend.    		 Stock Last Week's 
    Close    		 Daily high Daily low This Week's Close
    8489 5108.30 SMI 7570.10 7448 7338.10 7448
    53.5 AT&S 54 49 53.5
    SFr. 2300 1351 1351(1998) +88.75 Bachem 2550 2640 2550 2550
    Gbp  9.85 4.67 4.9(1998) +99.59% C&W 10.50 9.98 9.43 9.78
    E 174.90 126.60 140(1998) +61.43% Cap Gemini 252 234.90 210.10 226
    SFr.  79.90 25 40(1998) +137.5% Ericsson 105.75 95.75 86 95
    E.34.75 E.12.50 28 (1999) +16.79% Evotec  35.25 33 31 32.70
    E 336.90 169.70 189(1998) +103.17% LVMH 444.70 384 370.10 384
    Sfr.67 37 60(1999) +141.25% New Ventur 150.50 146 142 144.75
    E.134.80 52 30(1997) +455% Nokia 180 166.50 150 166.50
    Gbp19.50 2.40 4.5(1998) +375.55% Orange 20.99 21.97 19.50 21.40
    E.  11.80 4.06 2.6(1997) +58.46% Raisio Group 3.93 4.20 4.10 4.12
    SFr.  607 420 140(1997) +482.29% SAP 792 820 722 818
    E 39.40 12.40 17.7(1999) +223.73% Sonera 71 59.50 52.50 57.30
    SFr.  607 436 460(1998) +52.17% Syn-Stratec 729 710 690 700
    E 20.25 6.37 14.9(1999) +16.11% Zeltia 17.5 17.39 16.80 17.30
     
    *We decided to calculate the performance since recommendation, because we have recommended the different stocks
    to buy at different times.  Since we're convinced that one should be long term investors, we think the performance
    since recommendation is a better reflection of our goals.

    SAP reported that 4th quarter earnings more than doubled compared to
    last year's 4th quarter.  We saw the stock exploding to the upside.
    We would hold on to the stocks.  SAP remains the only major software
    company in Europe.

    Morgan Stanley Dean Witter has revised its target for Nokia to $180.  The
    market hurried to cover shorts and thus make the prognosis of MSDW
    likely to become true.  We think that Nokia is undervalued compared to
    Qualcomm.  Qualcomm will benefit from the next generation of CDMA
    wireless standard.  But Nokia will probably be equally profitable.  We therefore
    don't see why Qualcomm should be valued at a PE of more than 500 while
    Nokia has a PE of 78.  Since we don't believe Qualcomm will correct in a
    hurry, we expect the PE multiples of Nokia to expand.  Even if Nokia's
    stock prices were to double from the current level, it will still be cheaper than
    Qualcomm.  We therefore see no reason why Nokia shouldn't reach $300.
    The Samsung challange should, however, be taken seriously.  Therefore
    we would revise the target downwards to $240.   Also we would buy more
    Ericsson on weakness.  If CDMA were to become the next wireless communication
    standard, then Ericsson should profit for the same amount as Qualcomm.  As far as I
    can recall, Ericsson and Qualcomm's patent settlement calls for cross licensing across
    the board for the two companies.

    This week we add AT&S of Austria to our recommended list.  AT&S is a supplier of
    cell phone parts.  Its client list includes the likes of Nokia, Ericsson, etc.  Its business
    has grown very robustly along with the increase in sales of cell phones

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    Currencies and Bonds

    The dollar has stayed strong ever since the stock markets recovered a
    few weeks ago.  The SFr. 1.5950 level was broken briefly on Friday.
    Will we see SFr. 1.60?  I think we should see a brief correction, before
    the 1.60 level is challenged.
     

    Go to Index


    International Financial Systems

    August last year the world financial systems almost collapsed because
    of a gigantic wrong bet placed by the Long Term Capital Management.
    Investors of the world panicked and refused to touch any kind of
    bonds except the "safest". (the US Treasuries)  Even with the treasuries,
    the investors were very picky and only stayed in the most liquid bonds
    ie.those when issued.  The spread between when issued and the older
    treasuries grew so huge that the Long Term Capital Management was almost
    bankrupted by the margin requirements they had to put up for shorting
    the spreads.  To prevent a gigantic financial collapse, the Fed eased
    interest rates aggressively.  The US and the world economy is still
    benefiting from those bold cuts in interest rates.  The US economy
    benefited the most, because of three main factors that multiplied the
    liquidity in the US financial systems.  First, whatever liquidity created by
    the Fed remained mostly in the US, because of the positive market psychology.
    Second, at the same time, foreigners and the US investors pulled their money
    out of the emerging markets and parked most their money in the US for safety reasons.
    Third, whatever the IMF and World Bank pumped into the crisis region, most of the
    funds came back to the US, again for safety reasons.  This
    enormous amount of  liquidity created a huge asset bubble in the US
    (vide the valuation of internet stocks).

    But as long as the aversion of risk remains, we think the US markets will
    remain "overvalued".  The US dollar will not slip into crisis.  Because the US
    remains a safe haven. But what happens when the Japanese and the emerging
    markets heat up again?    Then the safe haven will no longer look so safe
    anymore.  And international investors would want to repatriate their funds.
    Therefore we would watch out for signs of recovery and growth in Japan and
    other Asian economies intensively.   Because once this trend starts, the
    Fed will not be in a position to save the stock market.

    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 brand name 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,
    Federal Express and UPS. 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, Cap Gemini,Broadvision and i2 technologies.


     
     
    *The stock prices are provided for informational purposes only and  not intended  for trading purposes.  The opinions expressed in these pages are what they are: opinions!
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