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    Investment Views  (November 22nd 1999)

    Markets in General

    The Fed raised the fed funds rates by one quarter point as well as the
    discount rates, but because they announced a neutral bias, stock markets
    everywhere rallied.  The Dow closed the week above the 11000 level.
    Although the markets everywhere is overbought, as we have repeatedly
    stressed in this column, when the upward momentum is strong, the market
    can stay overbought for quite some time.  We still expect the market to
    pause a bit, before making higher highs this year.

    The Dax is near its all time high and closed around the 5955 level.
    The German market is pausing a bit, even though the Nasdaq and
    S&P500 were making higher highs everyday last week.  The hostile
    bid by Vodafone for Mannesmann couldn't even drive the whole
    market higher.  WE  expect the market to correct a bit.
     

    Again the CAC made a series of historical higher highs  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 is again showing weakness.  The market closed below 7400
    on Friday.  We therefore expect the market to retreat perhaps to the
    7250 level in the next weeks.    But first, the 7350 level has to be broken
    to the downside.  Otherwise we will probably see the market testing 7600
    or even 7800 level.
     

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    Stocks

    Our favorite stocks remains SAP, Nokia, Raisio Group, Ericcson, Cable and Wireless, and Orange.
     
     
    High of the Year Low of the Year Performance
    since recommendation    		 Stock Last Week's 
    Close    		 Daily high Daily low This Week's Close
    8489 5108.30 SMI 7345.50 7431.60 7361.30 7421.20
    SFr. 2300 1351 +61.73% Bachem 2211 2230 2175 2185
    Gbp  9.85 4.67 +71.63% C&W 7.58 8.48 8.17 8.41
    E 174.90 126.60 +24.93% Cap Gemini 164.20 174.90 169 174.90
    SFr.  79.90 25 +91.37% Ericsson 68.95 79.95 74.55 76.55
    E.34.75 E.12.50 +22.3% Evotec*  27.50 34.75 32.40 34
    E 336.90 169.70 +75.71% LVMH 319 336.90 327 332.10
    Sfr.67 37 +56.66% New Ventur 89.80 94 92.50 94
    E.134.80 52 +326.66% Nokia 112.20 134.80 125.60 128.10
    Gbp19.50 2.40 +310.44% Orange 17.06 19.50 17.78 18.47
    E.  11.80 5.30 +161.15% Raisio Group 6.98 7.10 6.73 6.79
    SFr.  607 420 +304.28% SAP 579 578 564 566
    E 39.40 12.40 +107.34% Sonera 35.30 39.40 36.70 36.70
    SFr.  607 436 +26% Syn-Stratec 582 581 579 581
    E 20.25 6.37 +24.92% Zeltia 18.58 19.54 18.4 18.6
     
    * We don't have the exact prices for Evotec, because it started trading only on Friday.

    Last week's rally, as we have indicated above, was mostly a rally in the high
    tech and telecommunications stocks.  Sonera stock prices doubled since
    we recommended it!  Of course the American stocks like Qualcomm, Corsair
    have both more than doubled since I have recommended them unofficially
    in my section on future developements.   Nokia, Ericsson and Orange
    continue to perform very well indeed.  Cable and Wireless jumped on
    the rumor that Deutsche Telecom is interested in buying one2one, its
    wireless unit.  New Venturetec has risen about 50% since our
    recommendation.  We're really quite satisfied with our performance this
    year.

    This week we recommend our readers to take a small position in a very
    interesting biotech company called the Evotec.  It has just started trading
    last Thursday after IPO.  Although the price almost doubled on the first
    day of trading, we still feel that it is such an interesting company that people
    should buy on dips.

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    Currencies and Bonds

    The dollar has stayed strong ever since the stock markets recovered a
    few weeks ago.  The SFr. 1.56 level was broken briefly on Friday.
    We expect a re-test of SFr. 1.58 level.
     

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    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,
    Federal Express and UPS. 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, Cap Gemini,Broadvision and i2 technologies.
     
     
    *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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