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    Investment Views  (May 8th 2000)

    Markets in General

    As I had expected, the support levels on the Nasdaq (3800) and Dow (10400) held.
    The market is still a very nervous one.  We had testing and retesting of these
    support levels.  As far as I can tell, these levels have held.  We expect a general
    recovery.  Targets:  Dow 10800-11000, Nasdaq 4000-4200 levels are possible.
    But until the Fed's decision to raise the interest rates is out of the way, we
    should not see much upside.  Therefore be careful about adding to your positions.

    On May 16th the Fed will be meeting again.  The market expect a 50 basis point
    rise in interest rates.  The Fed has to do it, otherwise the market will be disappointed.
    Perversely, the market will probably rise, if the Fed raises the interest rates by
    1/2%, but it might fall, if the Fed only move by a 1/4%.

    Last week the Dax and CAC have mostly followed the movements of Wall Street.
    But both markets have continued to outperform Wall Street.  The Euro economies
    have again reported very good growth data.  The weakness of the currencies will
    help the exports.  And the Euro Central Bank has been very careful in
    raising interest rates so as not to kill the recovery in Germany and France.
    We're still the opinion that this year the European markets should outperform
    Wall Street.

    The SMI is finally exhibiting amazing strength.  The day when the Dow fell more than
    200 points, it barely lost 30 points.  But the general weakness on Wall Street has
    prevented the SMI's rise above 7600 level.  We should see another attempt next
    week though.

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    Stocks

    Our favorite stocks remains SAP, Nokia, Ericcson, Cable and Wireless.
     
     
    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 7427.80 7506.70 7441.20 7499.40
    E 90 50 53.5 (2000) +40.19% AT&S 78.70 76 75 75
    SFr. 3350 2475 1351(1998) +147.96% Bachem 3230 3350 3320 3350
    260 (2000) +50% Biodata 311 390 380 390
    Gbp 10.91 8.28 4.9(1998) +107.35% C&W 10.63 10.35 9.97 10.16
    E 368.90 210.10 140(1998) +48.50% Cap Gemini 216 218 205.70 207.90
    SFr.177 86 40(1998) +286.25% Ericsson 155 155 149 154.50
    E190 66.40 149 (2000) +7.38% Epcos 155 164 158.46 160
    E.199 E.32 28 (1999) +360.71% Evotec  124 129.80 126.50 129
    E 474 370.10 189(1998) +142.12% LVMH 461.60 461.80 444.40 457.60
    Sfr.275 133 60(1999) +257.08% New Ventur 192 215 210 214.25
    E.60.56 37.50 7.50(1997) +740% Nokia 62.90 63.95 61.60 63
    SFR.19400 17600 SFr.17880
    (2000)    		 -.45% Roche GS 17940 17800 17255 17800
    SFr.1362 655 140(1997) +475% SAP 818 808 795 805
    E 96 54 17.7(1999) +244.63% Sonera 59.85 61.30 57.30 61
    SFr.845 660 460(1998) +65.22% Syn-Stratec 734 783 757 760
    SFr1050 661 703(2000) +8.11% Think Tools  715 798 743 760
    E 63.35 16 14.9(1999) +264.43% Zeltia 54.5 54.30 53.75 54.3
     
    *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.

    Epcos reported outstanding results last week.  The company's profit increased
    more than 200% for the first half year and sales increased more than 50%.  The
    results are perhaps not surprising, since they make components for the cell
    phones of Nokia and Ericsson.

    Synthes-Stratec also reported good results.  Sales increased more than 20%, profit
    increased more than 40%.  We find the results very positive indeed.

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    Currencies and Bonds

    The dollar has remained strong against the Euro, even during the stock market  turmoil.
    While the US  trade deficit got worse, but dollar moved up against the Euro instead of
    falling.  Thus we have an unbroken upwards trend for the dollar.  The interest rates
    differentials are still positive and the shrinking federal deficit another positive factor.
    We remain cautiously optimistic on the dollar.  But Euro should have good support around
    the .90 level.  Soro's managers had obviously suffered huge losses betting on the Euros.  So
    the Euro weakness could have been exacerbated by hedge funds' liquidation.
    So the watershed event on the Euro might have taken place already.

    Last week the Euro fell below the .90  level but managed to recover to close
    above the 90cents level.  .90 still have to hold.  The danger that the Euro
    will fall below 85 cents level cannot be denied.  But my gut feeling is that the
    .90 level will hold.

    The Swiss Francs remain stronger than the Euro after the National Bank raised the interest
    rates by a surprising 3/4% last February.  But the dollar remains  positive against the Swiss Francs.
    The downside level to watch is SFr. 1.50.  Until then we should see further gains in the dollar.
     

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    International Financial Systems:  The Asset Bubble

    Everyone is talking about the asset bubble in the US waiting to burst.  Greenspan
    is playing with fire by relentlessly hiking interest rates.  Will the asset bubble burst
    in the US just like it did in Japan?  I doubt it.  History seldom repeats itself.
    The stocks in the US will correct by sectors.  At the moment the general market
    valuation is not high.  The overvaluation is in certain red hot high tech stocks.  The old techs
    have corrected.  Even the internet stocks have started to correct.  Investors are much
    more discriminating.  For example: Amazon is way off its highs.  Dr. Koop is below its
    IPO price. Hot stocks like JDS Uniphase and I2  Technologies are trading on their glowing
    future prospects.  And who can really say what kind of growth the future will bring?
    Indeed, if Greenspan can manage a soft landing for the US economy without
    crashing the stock markets, the future of global economy can be exceedingly
    bright.

    When talking about the asset bubble, analysts and jounalists tend to forget about
    the volatility of the bond, currency and real estates markets in the last decades which cause
    investors to be less than enthusiastic about those instruments.  Stocks have shown themselves
    to be a better investment for the long term.  As this insight begin to sink in the psyche of the
    world baby boomers, we should see greater allocation to equities than ever in history by the
    European and Japanese investors. That trend will cushion the blow of the rising interest rates
    in the US.
     

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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, Epcos  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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