Investview

Index

Investment Views (August 31st 1998)

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.

Markets in General

Who would have thought that the European markets would experience a mini-crash at this stage
of their economic developement? The interest rates are at historic lows. The economies are either growing
very strongly or are recovering from a very nasty period of resturcturing and slow growth. The Euro
seems to be a sure thing. Russian economy taken on its own is tiny. The problem is the perception that the
Asian contagion is finally spreading to the Latin Americas and Eastern Europe. With Japanese economy
in serious trouble, the only thriving economies seem to be that of the US and western Europe.
The question is how long can these economies hold out without the extra growth and profits
they used to earn in the emerging markets?

In a bear market the technical indicators no longer work very well. The oversold readings are no
longer reliable. People get used to sell into rising markets. The hysterical pessimism feeds on itself.
Therefore our advice made last week still holds. Sell into rallies whatever stocks that you're
not really sure you would want to hold for the long term. Sell the nonperformers and
start to nibble on blue chip stocks you have always wanted to own but were too expensive
recently.

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
HFl. 108.70	58.30	Baan	68.60	62	58..30	61.40
SFr. 1495	1351	Bachem	1820	1800	1700	1710
Gbp 8.13	4.67	C&W	7.67	6.43	5.75	6.07
SFr. 51	25	Ericsson	36.30	35.50	31.10	33.80
FIM 509	182	Nokia	417.50	406	369	394
Gbp 8	2.40	Orange	7.78	7.28	7.03	7.10
FIM 1080	640	Raisio Group	82.60	76.50	67	76.50
SFr. 1029	419	SAP	850	820	692	790
SFr. 2350	1820	Stratec	1900	1850	1800	1820

We went to visit a very impressive company last week: Stratec. The company specializes in making osteosynthesis
and osteoprothesis products. (Bone reconstruction and replacement parts.) Osteosynthesis makes up about
80% of the company's sales. The beauty of this business is: it is not cyclical. People have accidents no matter how
the economy is doing. Since bones are such important part of our anatomy, there is no danger that
health insurances will refuse to cover its costs like dental implants. Stratec is therefore able to report sales and
earnings growth around 15%-20% a year. Therefore we would like to replace Straumann with Stratec on our
recommended list.
Go to Index

Currencies

The comments we made last week on the curreny markets still hold. (See below) The only surprise is the very
steep decline of the dollar on Friday. Given the expectation that the Fed will and must ease
soon, it is not surprising that the dollar is weaker. Halleluja. We think a slightly weaker dollar
and lower interest rates will be beneficial for the world. We have repeatedly suggested that the Fed
is the central bank of the world. Unfortunately it has not lived up to its obligations as the
world central bank up until now. The Fed has been running a very tight monetary policy the last few
years. An indication of this tight policy is the historically high real interest rates (Real
interest rate is the nominal interest rates minus inflation) As the American and the European economies
grows,these economies suck in all the liquidity around the world. Thus leading to the worldwide deflationary
tendancy.

The turmoil on the world currency markets is spreading. It seems that in no time the Latin American economies will
also get hit. Still the G7 is doing nothing at the urging of the US. Well, when the Latin American currencies
and economies collapsed, we might just see an attack either on the US dollar or the European currencies. Of course
the US is the only country that can whether an attack by the currency speculators, since it is the only country without
foreign currencies debts. It would therefore more logical for the currency speculators to attack the individual
European currencies. We would therefore urge investors to be cautious in the European equity and bond markets.

The Hong Kong government had intervened massively in the currency, and stock markets. We believe that is
the only way to go. As we have stated a while ago in this newletter, up until now the markets are skewed in
favor of the speculators, because they can short different markets at the same time on margin. The strategies
of the central banks and IMF only played into the speculators' hands. Raising interest rates will only increase
the profits of the hedge funds that also shorted the stock index futures and bond futures, even if the currency
remains stable as a result. The economy of the defending country is weaked by these measures.

The Swiss Francs remain strong. Dollar, GBP and the Swiss Francs seem to be the only save haven
currencies left. The Swiss economy is recovering nicely. We do not see a weak Franc in the near
term.

Go to Index

*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!

LINKS:

Selected Business News

Archive