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    Investment Views  (November 8th 1999)

    Markets in General

    The ECB raised the rates in Europe by 1/2% and the stockmarkets in the world
    rallied! The feelings of the market participants seem to be that this will be the
    last interest rate rise for some time to come.  We're not so optimistic.  We feel
    that once this game of rising interest rates started, it usually doesn't stop
    at a one time rise.  The markets will find the hair in the soup in due time.
    We're therefore much less positive on the stock market than before.
    We still expect the Dow to trade in the range between 10000-10800, until
    at least the November 16th meeting of the FED.  Afterwards, the seasonal
    pressure for the market will be up.  So we might see new highs in December.
    But for next week, we see some mild corrections.  We're becoming very
    overbought again.  A pullback towards the 10500 level will be healthy.

    The Dax closed at 5658:  almost the highest level for this year.  But the rise
    was less than euphoric.  The rising interest rates does seem to temper the
    enthusiasm for stocks.  Overall the Dax still hasn't closed above the all
    time high made in Spring 1998.

    The CAC made a series of higher highs for this year, last week.  Generally
    the French economy is showing signs of real recovery, but the economy
    still has plenty of room to grow.  So, unless the ECB raised the interest
    rates too aggressively, the French economy will stay on track.

    The SMI finally managed to close above the critical resistance level:7250.
    But the market is becoming very overbought.  So we should see some
    backing and filling next week.  As long as the market stays above the
    7000 level, the uptrend remains intact.

    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 7160.3 7376.10 7295.30 7345.50
    SFr. 2300 1351 Bachem 2249 2235 2211 2220
    Gbp  9.85 4.67 C&W 6.97 7.17 6.80 6.93
    E 174.80 126.60 Cap Gemini 144 148.20 144.20 147.70
    SFr.  51 25 Ericsson 63.50 67 65 65.05
    E 253.90 169.70 LVMH 287 319 312.30 319
    Sfr.67 37 New Ventur 86.35 94 90 90.50
    E.79.50 52 Nokia 108.81 112.30 109.30 111.30
    Gbp10.75 2.40 Orange 15.05 15.75 14.88 15.47
    E.  11.80 5.30 Raisio Group 6.19 6.60 6.38 6.58
    SFr.  607 420 SAP 565 548 538 542
    E 19.22 12.40 Sonera 29.60 32 31.20 31.40
    SFr.  513 436 Syn-Stratec 566 587 578 582
    E 20.25 6.37 Zeltia 16.44 16.39 16 16.39
     
    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!   On the other hand Vodafone might bid for Mannesmann.
    Anyway we would hold on to Orange.

    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.  The company will be coming
    out with its internet software.  So everyone should stay put to see how the internet solution will be accepted.

    Nokia continues to report stellar results.  Sales increased more than 48% and profits increased around 38% for the
    quarter. They expect the fourth quarter to be even more positive.  What a company!  It will also be bringing out
    wireless internet phones.  Exciting days are still ahead of Nokia.

    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!

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    Currencies and Bonds

    The ECB raised rates by 1/2% and the Euro tanked!  For the short
    term, it was sell on the news.  But for the longer term, the euro should
    strengthen a bit.  The spread between the US and Euro interest rates
    have become smaller.  So the Europeans should be thinking twice,
    before they will commit to long dollar positions at these levels.

    The Swiss Francs weakened along with the Euro.  The SFr.1.55 level
    resistence hasn't been broken though.  We expect a bit of correction next
    week.  SFr. 1.55 level should not be broken easily.  On the downside,
    the SFR1.44 has held up well too.  So it's range trading until 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!
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