Index

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.

The German market followed Wall Street quite closely, although it is still
far from its highs made last year.  The cyclicals are rallying again.  So
the market judged the upturn in the German economy as sustainable, although
some negative news on the unemployment front were out last week.
The question remains whether the German recovery will gather enough
steam to make a dent in the unemployment situation without basic
labor laws reform in the country.  But a weak Euro will undoubtedly
help the exporters.

The Swiss market again exhibits weakness inspite of the rallying markets
all over the world.  Novartis warned about a weak third quarter despite of
their dementi last week.  Roche reported quite respectable numbers because of
Xenical, the diat drug.  But a cloud still hang over Roche, because of the
price-fixing scandal in vitamins.  The banks and insurances recovered a bit last week.
But all in all it was a poor performance.  We will have to be patient and wait
until the market test the 7280 level again.  But we're doubtful whether the market will
be able to overcome that resistence.  The SMI closed at around 7077 last week.
The market has become oversold again.  Therefore we do expect a bounce next
week.
 
 

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Last week we make two new recommendations:  Reed International and New
Venturetec AG.  Reed, because it's a very reasonably valued content company.
As we have argued in our opinion concerning the developement in the internet,
the content companies will be the long term winners on the net.

New Venturetec is a very interesting company.  It is a venture capital mutual
fund.  It is a cheap way for small investors to get involved in venture
capital investment with risk diversification.  Venturetec is especially interesting
because it is not only specialised in internet companies but also biotech.  So far
the stock has risen almost 70% this year.  There is a 28.1% premium over
the net asset value of the portfolio.  But venture capital investments are
typically difficult to evaluate.  So we do not think a 25% premium over
a conservative evaluation of the investments is too rich.

Cable and Wireless has been in the news constantly.  First of all it is
trying to sell its wireless communication unit one to one.  Second its
Cable and Wireless Telecommunication unit is rumored to be in
mergers talk with NTL.  After these transactions, Cable and Wireless
still needs a bigger global partner to survive in the comming age of
telecommunication giants.  We would therefore hold on to Cable and Wireless.
 

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We must admit that we have difficulties understanding the analysts on CNBC.
They seem to think that a weak Euro is such a tragedy.  But did the Americans
ever worry about a weak dollar?  They're happy that a weak dollar makes
American exporters more competitive.  Now the Europeans should be happy that
the Euro is not trading at a stratespheric level.  After the Plaza agreements,
the Americans and the markets have forced the Japanese and the Europeans
to upvalue their currencies at an breakneck pace.  No wonder the Japanese
and Europeans have problems adjusting to the new levels of their currencies.
Why is the American economy doing so well?  Part of it is because of the weak
dollar, stupid.  The real economic adjustments take time.  Re-structuring, moving
manufacturing abroad, firing and hiring take time.  In the very long term, we still
think that Euro will be strong.  But the momentary adjustments will take some
time to work out.

Our Thesis that the currency level is important for the recovery
of the Japanese and European economies have seen active support
from the Bank of Japan which had been actively intervening in the
currency markets to prevent a renewed strong Yen.  Our feeling is
the European Central Bank is not unhappy that the dollar is strengthening
against the Euro either.  So we would remain long dollars.

The dollar finally broke the SFr. 1.55 level.  Now it is a question of time
before we shall see 1.5850 level and maybe even 1.60.

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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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