Investview

Index

Investment Views (October 18th 1999)

I'm back! I had a wonderful time in Southern France. The weather is wonderful: sunny and warm.
The sea food is fantastic and the wine heavenly.

Markets in General

Because the market didn't manage to close above 10800 last week. It
promptly started re-testing the lows. On Friday we closed at 10019 on the Dow
on slightly stronger inflation data and the comments of Fed Chairman Greenspan.
But we're still convinced that the 10000 support level should be a robust one.
So if we don't close below that level decisively, we will probably see some
recovery. The Dow should resume range trading between 10000-10800.

The Dax finanlly followed the Dow lower. The only positive is that the 5000
level on Dax still seems to hold.

The CAC is still in a correction mode. We expect the market to be backing
and filling for a few weeks more. But the French economy is definitely doing
better. So we don't expect the market to correct too much further to the
downside.

The SMI is again exhibiting relative weakness. We closed below the critical level
of 6800 on Friday. Therefore we expect a retesting of the 6500 level support on
Monday. We still think the market should have good support around that level, but
since we're at the year's end when institutions are taking whatever profits they have
in a poor performance year, there is no guarantee that the 6000 level might not be
re-tested.

Go to Index

Stocks

Our favorite stocks remains SAP, Nokia, Raisio Group, Ericcson, Cable and Wireless, and Orange.

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	6907.40	6943.40	6764.60	6787.20
SFr. 2300	1351	Bachem	2190	2170	2140	2140
Gbp 9.85	4.67	C&W	6.70	6.83	6.63	6.70
E 174.80	126.60	Cap Gemini	148	143.50	137.60	141
SFr. 51	25	Ericsson	46.75	49	47	47
E 253.90	169.70	LVMH	281.50	287.50	279.70	282
Sfr.67	37	New Ventur	71	81.95	77	78.95
E.79.50	52	Nokia	84.10	88	84.45	86
Gbp10.75	2.40	Orange	11.97	13.52	13	13.08
E. 11.80	5.30	Raisio Group	6.33	6.90	6.68	6.70
SFr. 607	420	SAP	572	551	543	547
E 19.22	12.40	Sonera	27.13	25	23.99	24.30
SFr. 513	436	Syn-Stratec	558	592	582	585
E 20.25	6.37	Zeltia	15.60	15.75	15.25	15.67

SAP issued a profit warning for the next quarter. The stock fell more than 6% on that warning in one day. The next
day, the selloff continued. We would wait a bit before adding to the SAP position. But we think it might be a good
time to add to the Cap Gemini position which had fallen in sympathy with Oracle and SAP. But we think Cap
Gemini is a bit different from both other companies, because it still has plenty of room to grow in its home
market.

Go to Index

Currencies and Bonds

The dollar has been weak following the stock market. The SFr. 1.40 is
still a key support level. We still think that the dollar will remain in a
trading range, albeit a bigger trading range. The European central
bank had threaten to raise the rates, but it can't afford to do so.
A stronger Euro will risk killing off the export-driven recovery in Europe.

We still think that the central banks will hold off raising rates until the
beginning of next year.

Go to Index

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
benefitting from those bold cuts in interest rates. The US economy
benefitted 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 econemies intensively. Because once this trend starts, the
Fed will not be in a position to save the stock market.

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!

LINKS:

Selected Business News

Archive