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Europe has been backing and filling as well.  Both CAC and DAX have basically
not really gained much.  The volume has been extremely thin.  The European
Central Bank raised the interest rates by a full half point.  The market participants
were caught off-guard.  But by Friday CAC and DAX recovered a bit.  People
seem to think that the ECB is perhaps at the end of its interest raising moves, especially
if the US economy cools off.

The SMI followed the Dow, but corrected much less percentage-wise.  The SMI is
composed mostly of the so-called old economy stocks.  So far the old economy stocks
of Switzerland have performed very well.  It's the exchange rates, stupid!  Now that
the dollar has weakened against the Swiss Francs, it is not surprising to see the
likes of Nestle and Roche to pull back.  On the other hand we find the Roche weakness
puzzling.  Roche is a very dynamic pharmaceutical company with huge investments in
biotech companies. But investors seem to be buying Novartis and selling Roche, even
though the drug pipeline of Novartis is much less appealing than that of Roche.

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Roche has spun off Givaudan, a fragrance specialty chemical division.  The
market reacted by sending the Roche shares way down.  We think it is
unjustified.  By spinning off the slower growing segments, we think
Roche deserves a higher multiple.  We bought some more Roche.

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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.

The Euro has fallen below the . 90 level again and again.  We have the Euro closing the
day below .90.  But we kept on getting rebounds back above the .90 level.  All the
analysts on CNBC have become Euro-pessimists and expect a very weak summer
for the Euro.  Maybe the Euro has bottomed.

I think we were correct in calling a Euro bottom.  Since our call, the Euro has recovered
above the .93 level.  We remain convinced that the "correct" level of the Euro should
be 1-1: that the longer term trend of the Euro should be up and not down.  Trade deficits
and current account deficits are all indications for how strong an economy is.  In the
long term the market exchange rates will reflect such fundamental trends.

The dollar has also declined against the Swiss Francs.  SFr. 1.60 is critical.  If that level
should break, we should see further dollar weakness.
 

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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.