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    Investment Views  (October 25th 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

    Last week we had some backing and filling.  Positive is the fact that the 10000
    level on the Dow had held.  We're are back to range trading between 10800
    and 10000.  The level to watch is 10750-10800.  If we can get over this
    level, we might see new highs before the end of the year!  The problem is,
    next Friday the US government will report the third quarter GDP data.
    The market should remain nervous until a few days before the Fed meet
    again on November 14th.  Thus we expect the market to remain in this
    narriw trading band, before heading higher, since November is traditionally
    positive for the market.

    The Dax has behaved quite well last week.  The 5000 level was never seriously
    tested.  Although the market still follows Wall Street closely, we do not have
    the greater volatility.  We think that is a positive.  As long as Wall Street does
    not close below the 10000 level, we should see Dax stay above the 5000 level.

    The CAC corrected far more than the DAX last week.  But we have the feeling
    that we're near the end of this downward move.  We expect the CAC to behave
    well, next week.

    The SMI did not manage to close above 6950-7000.  Because Wall Street was
    so strong on Friday, we cannot rule out a recovery above that level next Monday.
    But the next strong resistence is already around 7250.  So we do not expect the
    market to close above 7250 until after the fed meeting on November 14th.

    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 6787.20 6892.60 6810.60 6876.90
    SFr. 2300 1351 Bachem 2140 2090 2050 2090
    Gbp  9.85 4.67 C&W 6.70 6.92 6.70 6.84
    E 174.80 126.60 Cap Gemini 141 149.50 144 148
    SFr.  51 25 Ericsson 47 58.20 51 56.10
    E 253.90 169.70 LVMH 282 289.80 285.50 289.70
    Sfr.67 37 New Ventur 78.95 82 78 82
    E.79.50 52 Nokia 86 96.10 94.40 95.90
    Gbp10.75 2.40 Orange 13.08 14.70 13.97 14.18
    E.  11.80 5.30 Raisio Group 6.70 6.70 6.60 6.70
    SFr.  607 420 SAP 547 526 495 525
    E 19.22 12.40 Sonera 24.30 27.85 27.29 27.66
    SFr.  513 436 Syn-Stratec 585 581 575 580
    E 20.25 6.37 Zeltia 15.67 15.40 15.25 15.25
     
    Congratulations to those of my clients who had bought Orange when we first recommended it around the £4.60 level.
    The company will be taken over by Mannesmann at around £14.50!  And it is likely that Vodafone will bid for Orange
    too, despite of the high price Mannesmann is paying!

    SAP reported disappointing results for the quarter.  The stock fell a bit, but recovered by Friday.  The feeling is:
    the bad results have already been discounted by the market before the report.

    Nokia continues to report stellar results.  Sales increased more than 48% and profits increased around 38%.
    They expect the fourth quarter to be even more positive.  What a company!

    Ericsson reported disappointing results on Friday.  But the chairman said that the worst is over.  That they
    expect next year to be the best year ever.  The market sent the shares soring over 15%. Mobile telephony is
    indeed conquering the world.  Europe is on the forefront for all this.  Because of the introduction of a new
    mobile internet standard, mobile telephones could replace the PC as the gateway to internet!

    Go to Index


    Currencies and Bonds

    The dollar has been  following the stock market closely.  Whenever the Wall Street
    falls, the dollar swoons too.  But all the same we see great support at the SFr. 1.44
    level. We remain convinced  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.  Therefore the dollar will hold up well.
     
    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!
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