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    Investment Views  (February 7th 2000)

    Markets in General

    The Fed raised the interest rates by a quarter percentage point on Wednesday but issued a
    hawkish statement concerning inflation.  The market stage a relief rally, but the participants
    began to worry about the March Fed meeting already.  So the market remains quite
    cautiously optimistic, but didn't manage to close above the 11000 level.  For the market
    to return to its amazing bull run, the market will have to close decisively above the 11000
    level.  Next week we could see another pullback.  10500 level is the level to watch.

    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 hit the 6850 support level last week and turn right back up.  We closed
    the week at the 7444 level.  That is actually a new high.  So it is a positive
    signal.  But the direction of Wall Street will still be important next week, although
    we're still quite optimistic about the developments in Germany.

    The CAC also made new highs last week.  The French economy is doing quite
    nicely.  The huge storm damages will be a positive factor for the economy.

    The Swiss market remains relatively weak.  At the moment it can't seem to manage
    to break above the 7200 level.  So we might see the market re-test the 6950 support
    level.

    Go to Index


    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 7029.60 7254.20 7113.90 7148.70
    82.50 50 53.5 (2000) +40.19% AT&S 68 77 75 75
    SFr. 2910 2475 1351(1998) +84.68% Bachem 2610 2500 2475 2495
    Gbp  11.90 8.28 4.9(1998) +163.67% C&W 13.13 13.25 12.34 12.92
    E 274.80 210.10 140(1998) +73.57% Cap Gemini 223.20 247 233.3 243
    SFr.122 86 40(1998) +242.50% Ericsson 117 140.50 136.50 137
    E.83.50 E.32 28 (1999) +167.86% Evotec  74 76.50 72 75
    E 474 370.10 189(1998) +133.33% LVMH 422 450 432.50 441
    Sfr.212.50 133 60(1999) +343.33% New Ventur 209.56 269.50 251 266
    E.196.50 150 30(1997) +559.17% Nokia 190.10 199.50 193.60 197.75
    Gbp24 19.50 4.5(1998) +466.67% Orange 22.01 26.70 24.90 25.50
    SFr.1030 655 140(1997) +630% SAP 1010 1030 1001 1022
    E 87 54 17.7(1999) +391.53% Sonera 71.50 87 82.25 87
    SFr.780 660 460(1998) +68.48% Syn-Stratec 779 802 775 775
    Varetis
    E 20.25 16 14.9(1999) +25.10% Zeltia 16.84 18.75 18.34 18.64
     
    *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.

    Next Monday a very interesting IPO will come to market: the German telephone
    software company, Varetis.  We recommend buying Varetis, because it is one
    of those high tech companies that have strong earnings already and has a very
    impressive client list.

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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,
    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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