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    Investment Views  (December 6th 1999)

    Markets in General

    Last week the US stock market corrected slightly.  The Dow pulled back to the
    10850 level intraday a couple of times,   but each time the market snapped
    back right away.  On Friday, when the employment data remained
    tame, the market exploded to the upside.  We expect higher highs for the rest
    of the year.  The market just doesn't seem to want to pull back.  The shorts
    are getting killed.  We have to sit tight and see how much further upside
    the market has.

    The Dax's upwards momentum has become weaker.  The pullback towards 5800
    is healthy.  Because of the strong rally on Friday in the US, we should see the Dax
    finally jumping over the 6000 level and make a higher high of this year.

    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 held up well despite of the corrections in New York and Frankfurt.
    It was clear that the rumors concerning Novartis was market supportive.
    Then the new came out on Thursday.  Novartis is merging its agrichemical
    business with those of Glaxo-Wellcome's and then spinning it off to the share-
    holders.  The market reacted favorably to the news, but mild profit taking in
    Novartis set in on Friday.  The SMI managed to close above 7547 level.
    We expect to see 7600 and then 7800 level tested.

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    Stocks

    Our favorite stocks remains SAP, Nokia, 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 7359.80 7557.20 7452 7547.30
    SFr. 2300 1351 1351(1998) +67.28% Bachem 2205 2295 2260 2260
    Gbp  9.85 4.67 4.9(1998) +98.37% C&W 8.55 8.93 8.05 8.82
    E 174.90 126.60 140(1998) +30% Cap Gemini 180 185 170.60 182
    SFr.  79.90 25 40(1998) +117% Ericsson 78 87.95 81.70 86.80
    E.34.75 E.12.50 28 (1999) +59.64% Evotec  35 45 41.40 44.70
    E 336.90 169.70 189(1998) +76.93% LVMH 328.30 335.50 327.30 334.40
    Sfr.67 37 60(1999) +78.33% New Ventur 105.50 107 105 107
    E.134.80 52 30(1997) +413.33% Nokia 144.23 155 142.90 154
    Gbp19.50 2.40 4.5(1998) +340.88% Orange 18.47 20.10 19.75 19.84
    E.  11.80 4.06 2.6(1997) +61.53% Raisio Group 6.10 4.50 4.20 4.20
    SFr.  607 420 140(1997) +308.57% SAP 551 576 547 572
    E 39.40 12.40 17.7(1999) +147.46% Sonera 39.30 44.30 42 43.80
    SFr.  607 436 460(1998) +39.35% Syn-Stratec 639 648 639 641
    E 20.25 6.37 14.9(1999) +15.77% Zeltia 17.39 17.64 16.8 17.25
     
    *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 78.  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 $300.

    Raisio fell hard and fast last week after Warburg Dillon Reed took it off its
    recommended list.  Raisio admitted that they had some problems introducing
    its margarine in the US.  But sales in the UK and Europe is doing well.  We would
    therefore wait patiently for Raisio to sort out its problems in the US.

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    Currencies and Bonds

    The dollar has stayed strong ever since the stock markets recovered a
    few weeks ago.  The SFr. 1.5950 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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