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    Investment Views  (August 30th 1999)

     

    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

    Alan Greenspan has finally made it clear.  The Fed will also take stock prices into
    account in the monetary policy.  Thus the Fed probably could raise the interest
    rates again, if the stock market continue to rally, although he admits that it
    is difficult to know, when there is an asset bubble until after it bursted. The
    market corrected in a hurry on Friday, after hearing this comment.  But the rally
    was rather narrowly based anyway.  The volume was thin.  So the market
    quickly became overbought again.  We expect the market to go back to about
    10800 again, before trying to rally again.  After all, the earnings are expected
    to be better next two quarters.

    Pricking the bubble is notoriously difficult.  I rather doubt that the Fed will
    seriously consider measures to that effect.  I think Greenspans comments
    are equivalents of verbal interventions on the currency markets.  We will
    have to see whether the market players will listen to him and whether the
    Fed will really take action to emphasize their intentions.

    The Dax has exhibited quite a bit of strength by not following Wall Street
    on Friday and stayed above the 5400 level.  If the New York market continues
    to correct mildly, we expect the Dax to remain  relatively strong. But all bets
    are off, if the Dow starts to correct in a serious mode.

    The SMI also has held up well on Friday.  But it will have difficulties to rise above
    7200.  Somehow, the investors continue to be disappointed by reported earnings,
    although all the firms forecast better second quarter results.But the Swiss market
    has never been very forward looking.  So we would tread carefully the next few
    weeks.  The market has become overbought again.  The first support level will be
    7100.  Then we'll have to watch whether 6980 will hold.

    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
    8489 5108.30 SMI 7051.50 7193.40 7167.70 7167.70
    SFr. 2300 1351 Bachem 2100 2115 2085 2100
    Gbp  9.85 4.67 C&W 7.18 7.37 7.19 7.31
    E 174.80 126.60 Cap Gemini 154 162.80 158.50 159.10
    SFr.  51 25 Ericsson 48.80 52.25 51.25 51.50
    E 253.90 169.70 LVMH 285.40 294.60 291.10 293.50
    Sfr.67 37 New Ventur 61.50 66 64 65.50
    E.79.50 52 Nokia 79 83.30 80.75 81.35
    Gbp10.75 2.40 Orange 9.84 10.69 10.31 10.64
    E.  11.80 5.30 Raisio Group 10.10 10.10 9.55 9.95
    SFr.  607 420 SAP 511 514 506 506
    E 19.22 12.40 Sonera 23.50 23.40 22.65 22.80
    SFr.  513 436 Syn-Stratec 547 582 572 575
    SFr.649 496 Swisscom 526 536 520 523
     
    Swisscom has reported good earnings.  But the market is still worried about the
    debitel deal.  Swisscom paid a very high price for debitel.  In Germany the
    competition in telecommunication is very cut-throat.  But the analysts seem to
    have forgot that the concentration process in the telecom sector has begun.
    Viag and Veba are both getting out of the telecom business.  So we would stick
    with Swisscom, although we too are worried by the debitel acquisition.

    Novartis announced a share buyback program of more than 4 billion Swiss Francs, but
    the market refused to react positively to this news.  Analysts were hoping for further
    mergers with the likes of Smithkline-Beecham.  The share buyback program seems
    to indicated that Novartis is no longer interested in further acquisition.  We disagree.
    A low valuation on the stock market is a disadvantage in the market for mergers
    and acquisition.  We think Novartis management has recognized this problem.

    Go to Index


    Currencies and Bonds

    As we had expected, the dollar recovered.  The fundamentals are
    still favoriable for the dollar.  We would stay long and see if the dollar
    can hit SFr. 1.55.

    As we had expected, the bond market recovered quite a bit
    after hitting 6.3% yield on the 30 years treasuries.  The yield has
    come down below 6.0%.  The treasuries has retraced a bit of the advance
    on Friday after Greenspan's speech.  But we're still convinced that
    there is no inflationary pressure.

    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 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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