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Investment Views (October 19th 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

Just as we had expected, the European stock markets recovered quite nicely
last week. All of sudden warnings from companies like Schering that their earnings
might be weaker because of Asia and the strong D-Mark did not cause the whole
market to crater. Before the fed had lowered the fed funds rate by a quarter
percent and the discount rate by the same amount, the European markets
already were rallying strongly. On Friday the markets pulled back somewhat
on profit taking and options expirations trading. In general one can tell,
the sentiments have improved. But it is still too early to tell, whether the
European markets will return to its old all-time highs of July. In fact
if the dollar should weaken further, we should see a retest of the lows made
in early October.

On Wall Street and in Asia, just as we had pointed out several weeks ago,
we're convinced that we have seen the lows, already. Asia's markets
should improve substantially, if the Japanese should come through with
their banking reforms and aid packages for South East Asia.

The Swiss markets closed above 6000 level two days in a row. The
markets could correct a bit from here, because we're becoming over-
bought. But it the SMI does not close substantially below 5800, we see
the momentary up-trend holding. The next levels to watch are: 6250 and
6500 on the SMI.

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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
SFr. 1495	1351	Bachem	1630	1740	1700	1700
Gbp 8.13	4.67	C&W	5.83	6.50	6.23	6.39
SFr. 51	25	Ericsson	21.50	30.55	29.10	29.75
FIM 509	182	Nokia	311	399.50	377	389.90
Gbp 8	2.40	Orange	4.22	5.85	5.25	5.54
FIM 1080	640	Raisio Group	76	87	80	82.60
SFr. 1029	419	SAP	500	579	556	568
SFr. 2350	1820	Stratec	1530	1510	1461	1510

Those investors who have followed our advice last week and added to their positions in Ericsson and
Nokia have profited handsomely. But while Ericsson has recovered more than 38%, Nokia has
only increased about 25%. Both very nice profits for one week indeed.

SAP did less well, gaining only 13% since the close of last week. But we're still convinced that
every European portfolio will want to have SAP for the long term. Of course it has a rich valuation.
But as owners of Microsoft and Dell or Cisco will testify, quality has its price.

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Currencies

The fed has lowered the fed funds rates in between FOMC meetings. The situation with
the hedge funds must be quite drastic indeed. The reaction in Europe seems to be one
of consternation rather than relief. Although the Europeans keep on repeating the
mantra that the Asian and Latin American crisis will affect the American economy
much more than the European one, I have my doubts. The European stock
markets actually seem to indicate that investors think the opposite is true.
The European economies have much less flexibility or manuvering room.
On the interest rates front, the Bundesbank cannot cut the German interest rates
aggressively for the fear of upseting the planned convergence of the interest rates in
Euroland by the end of this year. On the fiscal side, the budgetary limitation on fiscal
deficits have tied the governments' hands in lowering taxes or initiating other fiscal stimulus
measures. With the newly elected German governments rolling back the reforms on social
welfares initiated by the Kohl government without any clear indication how they will
finance these moratoriums, we think the chances for lowr interest rates in Germany is quite
minimal. Therefore we still think a global recession is possible. We do not see dollar
strengthening substantially against the European currencies. This is of course good
news for Asia and Latin America.

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*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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