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Investment Views (January 31st 2000)

Markets in General

We had expected the nervousness and the volatility before the Fed open market committee
meeting next week. But we had not expected a correction of such a magnitude. We had
fully expected the 11000 level to hold. But since the 10800 level did not hold, we expect
the market to go down all the way to about 10500, before bouncing back. But we
should be more cautious than optimistic, if the Asian markets remain so strong.(see our
arguments below)

As I have pointed out long time ago, the e-retailers have shown themselves to be unable
to make a profit. The amazons of this world have no pricing power. But there are still
strong techs out there: the B2B internet stocks, the software and net infra-structure stocks.
Although no one is making money on the internet, it is still paramount for all companies to
present themselves on the net, if only to defend their brand image. So we should see continued
investment by companies of all sizes on e-commerce software, and internet infra-structures. And
companies will have to get ready for the next wireless phone internet presence. Therefore
we wouldn't sell off all tech stocks indiscriminately.

The Dax corrected along with Wall Street. Since Wall Street did not fall seriously until
after the Dax was closed, we expect the Dax to catch up on Monday. The next
level to watch is 6800. We are still quite optimistic on the Dax, if the Dow
manages to avoid a crash.

The CAC followed the amazingly strong Asian markets on Friday. It was almost the
only major European market that closed positively. The French growth has been
stronger than expected. We remain positive on the CAC.

The Swiss market broke out of its trading range last week. 6950 offers strong support,
so unless the Dow falls below 10500, this level should hold. On the other hand,
the Swiss market has been relatively weak all last year. The major stocks are still
reasonably valued. So maybe the foreign investors will finally recognize this and
start nibbling.

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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
7580	6968			SMI	7236	7156.10	7021.80	7029.60
		53.5 (2000)	27.10%	AT&S	79.50	72.10	68	68
SFr. 2910	2500	1351(1998)	+93.19%	Bachem	2840	2799	2610	2610
Gbp 11.90	8.28	4.9(1998)	+167.96%	C&W	10.43	13.79	12.95	13.13
E 274.80	210.10	140(1998)	+59.43%	Cap Gemini	239	232	216.10	223.20
SFr.122	86	40(1998)	+192.50%	Ericsson	106.50	122	114.75	117
E.83.50	E.32	28 (1999)	+164.29%	Evotec	56	83.50	71	74
E 474	370.10	189(1998)	+123.28%	LVMH	433	426	409.70	422
Sfr.212.50	133	60(1999)	+249.27%	New Ventur	170	212.50	194	209.56
E.196.50	150	30(1997)	+533.33%	Nokia	177	196.50	185	190.10
Gbp24	19.50	4.5(1998)	+389.11%	Orange	22.05	22.47	21.75	22.01
SFr.1024	655	140(1997)	+621.43%	SAP	896	1024	960	1010
E 73	54	17.7(1999)	+303.95%	Sonera	67	73	67	71.50
SFr.780	660	460(1998)	+69.35%	Syn-Stratec	720	780	755	779
E 20.25	16	14.9(1999)	+13.02%	Zeltia	17.3	17.08	16.61	16.84

*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.

Ericsson reported much better earnings than expected. The company
is also optimistic about the prospects of this year. The shares exploded
to the upside. We remain committed to this stock and recommend
adding to the position on weakness.

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 500 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.
The Samsung challange should, however, be taken seriously. Therefore
we would revise the target downwards to $240. Also we would buy more
Ericsson on weakness. If CDMA were to become the next wireless communication
standard, then Ericsson should profit for the same amount as Qualcomm. As far as I
can recall, Ericsson and Qualcomm's patent settlement calls for cross licensing across
the board for the two companies.

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Currencies and Bonds

The dollar broke above the SFR.1.60. The next level to watch is
SFr. 1.68. The dollar remains strong, because the US economy
remains strong and the Fed is forced to raise the interest rates.
Plus the US budget surplus is a big positive. We might even
see SFR. 1.80 this year.

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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
benefiting from those bold cuts in interest rates. The US economy
benefited 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 economies 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 brand name 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 purposes only and not intended for trading purposes. The opinions expressed in these pages are what they are: opinions!

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