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    Investment Views  (February 14th 2000)

    Markets in General

    As we had expected, the market did not manage to close decisively above 11000 level on
    the Dow.  Thus we saw a selloff to the 10400 level.  We expect an intermediate bottom to
    be in place here, because the market is becoming oversold.  But a test of the 10000 support
    level cannot be ruled out.  The only positive is that the investment advisors are becoming
    very bearish.  But the possibility that the Fed will raise interest rates again in March is
    still on everybody's mind.  That's why we cannot rule out a test of the 10000 level.  But
    we would be a buyer, if the market should reach that level.

    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.

    We had been too cautious about the market in Germany.  Last week the Dax managed to
    make several higher highs before pulling back on Friday.  But the general environment continues
    to be positive for the Dax.  The institutionals are still under invested in equities.  So we expect
    the Dax to remain strong, despite or perhaps because of the weakness on Wall Street.

    The CAC also made new highs last week.  The French economy is doing quite
    nicely.  The huge storm damages will be a positive factor for the economy.  We expect
    the CAC to remain strong, although perhaps not as strong as last year.

    As we had expected, the Swiss Market remained weak.  Indeed it has become one of
    the weakest in Europe.  The Nestles and Roche just don't seem very sexy in comparison
    to the high flyers on the Nasdaq or the Nemax.  But steady growth and earnings should
    not be sneered at.  Long term investors, now is the time to load up on these two stocks.

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    Stocks

    Our favorite stocks remains SAP, Nokia, Ericcson, Cable and Wireless.
     
     
    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
    7580 6968 SMI 7029.60 7254.20 7113.90 7148.70
    82.50 50 53.5 (2000) +40.19% AT&S 75 88 77 82
    SFr. 2910 2475 1351(1998) +84.68% Bachem 2495 2500 2450 2500
    Gbp  11.90 8.28 4.9(1998) +163.67% C&W 12.92 14.77 13.30 13.89
    E 274.80 210.10 140(1998) +73.57% Cap Gemini 243 267.80 255.50 267
    SFr.122 86 40(1998) +242.50% Ericsson 137 150.75 146.25 148.50
    E190 66.40 164.50 Epcos 189 164.50 164.50
    E.83.50 E.32 28 (1999) +167.86% Evotec  75 96.50 86 91
    E 474 370.10 189(1998) +133.33% LVMH 441 409.30 393.70 409.30
    Sfr.275 133 60(1999) +343.33% New Ventur 266 255 240 244
    E.207.20 150 30(1997) +559.17% Nokia 197.75 204.50 196.30 200
    SFr.1030 655 140(1997) +630% SAP 1022 1080 1048 1055
    E 87 54 17.7(1999) +391.53% Sonera 87 82 79.80 81
    SFr.780 660 460(1998) +68.48% Syn-Stratec 775 810 780 780
    78(2000) Varetis 85 78 78
    E 20.25 16 14.9(1999) +25.10% Zeltia 18.64 21.50 20 21.50
     
    *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.

    Varetis came to market more than tripple its offering price.  We had waited for
    the market to quiet down, before recommending the stock.  We recommend
    buying a half position at 78 and wait some more to see if the price stablized
    around this level before buying more.

    This week we recommend buying Epcos.  Epcos will replace Mannesmann in
    the Dax next Monday.  Epcos is a maker of electronic parts and used to be
    a part of the Siemens.  Its wireless telephony parts business is booming.  We expect
    this trend to continue.

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    Currencies and Bonds

    The dollar broke above the SFR.1.60.  The next level to watch is
    SFr. 1.68.  The dollar remains strong, because the US economy
    remains strong and the Fed is forced to raise the interest rates.
    Plus the US budget surplus is a big positive.  We might even
    see SFR. 1.80 this year.
     

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    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.

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    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,
    and UPS. We would also recommend the stocks of Corsair (CAIR),Qualcomm,
    Ericsson, Nokia, Epcos  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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