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    Investment Views  (November 29th 1999)

    Markets in General

    As we had forecasted last week, the Dow is indeed pausing a bit.
    The 11000 level has now become a resistence level.  We need
    to close above that level decisively in order for the market to make
    a new run for a higher high.  Unfortunately there was no strong
    sell-off last week to relieve the extreme overboughtness of the
    market.  We therefore still expect the market to have to pull back much
    more before resuming the upward trend.  The Nasdaq is becoming
    airy in the extreme.  We still see no let up in the tech rally. But the valuations
    of certain stocks are becoming extremely frothy.  This kind of market
    developements do not bode well for a soft landing.  We're convinced that
    the Fed will raise the interest rates again in February, unless the market
    pulls back a lot more to let out some hot air.  The level to watch on the
    downside is 10800.  Breaking that level should see the market pull back
    all the way to 10500.

    The Dax's upwards momentum has become weaker.  But
    we still didn't pull back meaningfully.  The Dax closed the week
    almost unchanged.  If the Dow should start correcting next week,
    we expect the Dax to follow suit.  The Mannesmann takeover story
    is still market supportive.  So we do not expect big downside movement.

    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.  Almost all
    analysts are positive on the French market.  Some caution is warrented.

    The SMI had retreated to the 7220 level before bouncing back above
    the 7350 level again.  But the general market still lacks conviction and
    volume.  We do not expect great things of the SMI.  It will continue to
    underperform the rest of the European markets.

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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 Price and year of recommend.  Performance*
    since recommend.    		 Stock Last Week's 
    Close    		 Daily high Daily low This Week's Close
    8489 5108.30 SMI 7421.20 7369.80 7309.90 7359.80
    SFr. 2300 1351 1351(1998) +63.21% Bachem 2185 2235 2200 2205
    Gbp  9.85 4.67 4.9(1998) +74.48% C&W 8.41 8.74 8.03 8.55
    E 174.90 126.60 140(1998) +28.57% Cap Gemini 174.90 180 174.90 180
    SFr.  79.90 25 40(1998) +95% Ericsson 76.55 79.95 75.80 78
    E.34.75 E.12.50 28 (1999) +25% Evotec  34 37.80 34 35
    E 336.90 169.70 189(1998) +73.70% LVMH 332.10 334 326 328.30
    Sfr.67 37 60(1999) +75.83% New Ventur 94 107 102 105.50
    E.134.80 52 30(1997) +326.66% Nokia 128.10 145 136.50 144.23
    Gbp19.50 2.40 4.5(1998) +380.76% Orange 17.06 19.50 17.78 18.47
    E.  11.80 5.30 2.6(1997) +134.61% Raisio Group 6.79 6.20 6.07 6.10
    SFr.  607 420 140(1997) +293.57% SAP 566 558 541 551
    E 39.40 12.40 17.7(1999) +107.34% Sonera 36.70 39.45 38.50 39.30
    SFr.  607 436 460(1998) +38.26% Syn-Stratec 581 648 636 636
    E 20.25 6.37 14.9(1999) +16.71% Zeltia 18.6 18.02 17.26 17.39
     
    *We decided to calculate the performance since recommendation, because we have recommended the different stocks
    to buy at different times.  Since we're convinced that one should be long term investors, we think the performance
    since recommendation is a better reflection of our goals.

    Morgan Stanley Dean Witter has revised its target for Nokia to $180.  The
    market hurried to cover shorts and thus make the prognosis of MSDW
    likely to become true.  We think that Nokia is undervalued compared to
    Qualcomm.  Qualcomm will benefit from the next generation of CDMA
    wireless standard.  But Nokia will probably be equally profitable.  We therefore
    don't see why Qualcomm should be valued at a PE of more than 300 while
    Nokia has a PE of 65.  Since we don't believe Qualcomm will correct in a
    hurry, we expect the PE multiples of Nokia to expand.  Even if Nokia's
    stock prices were to double from the current level, it will still be cheaper than
    Qualcomm.  We therefore see no reason why Nokia shouldn't reach $290.

    Synthes-Stratec has completed a secondary stock offering.  The stock had
    languished before the whole exercise.  Now we see higher highs coming along.

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    Currencies and Bonds

    The dollar has stayed strong ever since the stock markets recovered a
    few weeks ago.  The SFr. 1.58 level was broken briefly on Friday.
    Will we see SFr. 1.60?  I think we should see a brief correction, before
    the 1.60 level is challenged.
     

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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.

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    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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