World Reports


May – July 2000

* WHAT NEXT? The best investments are made when markets are down. Learn how opportunities might arise in the months ahead.

* QUESTIONS ABOUT MARKETS & CURRENCIES. Page seven.

* ECUADOR UPDATE FROM OUR LAST VISIT. Page twenty.

Morning mists hang like sheets over fields where hummingbirds hang on spring blooms. Birds sing to announce the dawn, reflecting like precious jewels in the rising sun. The rushing creek sings of Spring's awakening, of never ending change and of new life from the old.

Dawn, Merrily Farms at Little Horse Creek. Spring comes late this high in the mountains. The blooms are just reaching their full glory, the trees emerald tipped. This is the season of the new, but also a repetition of so many seasons past. Economics are the same, our reflections and rationalizations of what nature is waves rising, falling, in seemingly endless turmoil but, underneath always the same. Excerpts below from reports I have been sending to our web readers during this period explains what I mean. Before the Big Crash

On April 9th, I sent the following message to International eClub members: Survive the June 21 Shift. A huge economic shift is about to descend (the first danger period begins May 5 and crests June 21, 2000). This force will change business and investing for all time yet the only way to see it seems so off the wall, I hate to explain.

But I will. First some background.

A few years ago Merri and I began to act strangely. We felt compelled to start selling pieces of our highly successful multimillion dollar business. Then we found ourselves travelling to really weird places, hidden valleys, deep in jungles, isolated islands and high up windswept mountains. We even moved out of our millon dollar house and lived in the Andes in a 10 by 10 tin roofed hut!

We started doing business with farmers who couldn't even speak English and riding around in a 40 year old Land Rover. We sold our Rolls Royce. We even bought a farm in the deepest part of the Blue Ridge Mountains called the Lost Province, a spot so remote and with such a reputation it is said that the sheriff wouldn't come in without three or four cars. And we actually began to dig in the dirt, whack brush and farm.

Just as years earlier when we had predicted investing in really seemingly strange places like Vienna, Finland and Turkey, I wondered, "What in the heck are we doing?"

Then while speaking at a Jyske Bank seminar, I listened to another of the speakers, Mr. Johan Peter Palludan, a futurist from the Copenhagen Institute for Future Studies (CIFS). CIFS is one of the most successful think-tanks in the world. 110 companies including Proctor & Gamble, Lego, Bang & Olufsen, three Danish ministries, the City of Copenhagen and the ad agency DDB Needham pay $10,000 a year to pick this institute's brains. Mr. Palludan spoke about the Dream Society, the economic society of the future and what investors would do and how to profit there. I was spellbound because what he described was what Merri and I were doing!

This is why the upcoming Jyske seminar where I will speak with Mr. Palludan and another highly successful futurist, Ian D. Pearson, is so important to attend. Ian is a high tech futurist who will speak about the future of telecommunications and technology. He works for huge firms such as British Telecom and billions of dollars in investments are at staked on what he says.

Here is even more background. To explain why this Copenhagen meeting is so providentially timed I have to go clear back to High School days when I worked as a busboy in Portland, Oregon at one of the city's busiest restaurants. Patrons often waited two hours in the lounge for a table. Consequently the bar business was brisk (the owners gave away the food and made their money on the booze). From this system emerged an occasional drunk, but generally everything remained civilized, until the full moon. Talk about wolves howling! This time of the month seemed to bring out every looney, hard drinker and mean person in town. The diners were so aggressive and rude. The waitresses complained that their income from their tips fell and there were many, many more drunks!

Even though only 16 years of age, I quickly gained respect for our relationship with the moon, planets and stars. This respect and fascination has remained with me.

Let's zoom back to modern times. Now. The stock market has been boiling over for years. Price earnings ratios are astronomical. Yields are way, way down. Owning shares makes no economic sense. Every time in the past hundred years that markets have been like this, the market has crashed. The higher has been the rise, the larger and more rapid the fall.

The market is acting dangerously now.

When exactly will the big correction come? I have learned over the past several years that watching P/E ratios, momentum and value analysis does not work for predicting exact days. All that mathmatical stuff gives an overall impression, but understanding crash points requires more depth. We have to look for events that makes the whole of society move and itch!

Back to the stars. Aristotle, Onassis, one of the world's most famous industrialists summed up this importance when he said, "You do not have to believe in astrology to become a millionaire. But to be a billionaire, you must understand the stars." That quote always resonated with me because of my restaurant experience. So I took special note when I learned that beginning in May the planets move into a position where the earth is on one side of the sun, while Mercury, Mars, Venus, Jupiter, and Saturn will be on the other side in a tight configuration (all within 19.4 degrees of one another). This is a rare occasion that will create some very uncomfortable short term social consequences. If a full moon can turn diners bananas, imagine what this astrological lineup can do to investor psyche all over the world.

Yet there is more to worry about than the fear, nervousness and anger this planetary event may evoke. Added to this social agitation the sun is at its strongest Solar Maximum cycle. This means that the sun is likely to spew deadly bursts of radiation that could interrupt or even destroy satellites, global communciations, computers and electricity grids. Match any kind of meltdown in our electronics and global communications with a period of planetary induced social apprehension and the conditions are ripe for a market collapse. The experts, market pundits and economists will come up with monetary reasons after the fact, but by then it's too late if you are still in what's left of the market.

This period peaks June 21st, so if there is ever a time in the near future to watch out for non-anticipated, unexplained crashes of any sort, including financial markets, this will be the time.

This is why I am speaking at the June 14-18 in Copenhagen. The timing for this meeting is perfect. Most professionals already know that a market crash is coming. I saw this fact when reviewing the Copenhagen speakers' schedule. Along with the two futurists and me there are a handful of experienced investment managers and economic advisors speaking. Most have set the titles of their speeches on how to survive the market crash!

Then Later I wrote: "The goal at garyascott.com is to help you make, keep and enjoy wealth. I was especially reminded of the keeping aspect this last week as I learned new lessons about weather by living in the Blue Ridge Mountains. The winter was special, surrounded by deep snow, everything looking white and pure. But by the time spring arrived, I was ready! However this spring weather is so unpredictable. Several days ago it snowed. Yesterday we planted fruit and nut trees (peach, plum, pear, cherry, gooseberry, hazelnut and black walnut), in temperatures so high I had my shirt off. Today the ground is covered again with snow.

Perhaps the weather is like the U.S. stock market. First everything looks perfect, wonderful, you can't lose. Then there is so much turmoil, hot one day, cold the next.

That cold can be bitter, even deadly, both in mountain weather and stocks. You can understand this better by sharing a true story about a young executive, (just 25 years old), his business and his shares.

Young and earnest, he worked his heart out for four years. Almost sacrificed his family (ended up divorced) trying to build a financial future. But he thought it worth the stress. The stock market had been rising for decades. The bull market was all he knew, shares rising, IPOs were coming out every day-almost guaranteed success.

His industry was in a hot sector and his company, near the top, had gone public. His compensation was generous, including stock options, 50,000 shares at a dollar each. The shares were trading for $20. He was at 25 already a millionaire!

But he was troubled. His industry was so hot that competition had become fierce. Good employees were jumping job to job, grabbing larger salaries, bigger options, better compensation as they moved. His hapless company (and competitors too) were paying so much for talent there was no way they could be profitable.

Yet the young man was one of the few who remained loyal, working hard despite his fears about the firm's lack of profit. He pushed down his common sense and relied on what everyone said. "In this industry profit doesn't have to be made right away," he had been told again and again. So he just kept plunging away waiting for those shares to rise even more.

Then the market collapsed. A new experience for him. The sudden drop caused a run on his company shares and soon his and many other siimilar firms which were starved for operating cash collapsed. The entire industry tanked and his company went broke. He ended up not only unemployed but with no money and in debt. His stock options weren't worth the paper they were printed on.

Which dot.com did this guy work for you ask? Or was it a software firm? This has to be high tech. Right?

Wrong. The hottest industry in 1968 was the overseas mutual fund business led by three huge concerns (IOS, Gramco and USIS). I was that young man starting at age 21 with USIS when they had eight employees. Within four years they had over 2000 employees and at age 25 my stock options were worth one million dollars (which was a lot of money then). In 1969 the U.S. stock market (after nearly 20 bull years) collapsed along with the U.S. dollar. This brought down an entire industry. Within two years all three of the big firms (none of which were making a profit, all of which were throwing tons of cash at gaining market share) were bust.

Profits didn't matter it had been said. Just survive and grow through tight labor, job hopping employees, super inflated stock markets, small investor nervousness, etc.

Sound familiar? All these factors are the same now in the dot.com and high tech industry as they were in the overseas fund business then.

I am sharing this early history because though I lost my first fortune and a job, I have never lost the lesson. This is why I have held almost no equities in my portfolio for over a year. One hates to walk away from markets when they have not topped. But we can never tell when that shift will come. Human nature being what it is, when the drop does start there is a chance we won't know for sure if the bear really has set in or not. We'll wait just awhile to see if prices comes back. Too late! Overnight we can lose 40% – 50% – 60% or everything.

All the things happening in markets now happened to me over 30 years ago and they have happened before that again and again. None of this stuff is new! We can predict what is coming. Yet it is so easy to blind ourselves. Denial is the medical term used. So my job in the keeping wealth department is to offer the continual reminder. There are always ways to make money even in the toughest of times, but also forces that will rob you of every penny you have when times look the best. Reality? There is no such thing as good and bad times for genuine investors. They use principles that work when economic conditions or up and down. For gamblers, any time, all the time can be bad, even when markets seem good.

Many of you have asked what type of money management in such situations is best. The answer is complex…each person's risk, situation and personality is different. Because I've personally experienced the highs and lows of markets, I only have one portfolio manager with discretionary management powers, who holds shares for me today, Nigel Stephens Counsel, in Canada. You can learn more why I trust this firm to help me keep my wealth in turbulent times by clicking onto my www.garyascott.com website. There you will also see why they now have over half my portfolio in bonds.

After and During the Crash

Hopefully the warning above was in time for readers. However to make sure, on Saturday June 15, after both the Dow and NASDAQ had experienced huge drops, I shared the information below:

As June 21, 2000 Shift Intensifies – We Are Here For You. Two events (I have been waiting for) happened simultaneously. First, the steep and sudden decline of the Nasdaq and the Dow. Second, this is the first time I can use the power of the Internet to help you through such turmoil in real time. In 1987 on Black Friday, the best I could do was take a few phone calls. My phone lines were jammed, mail was too slow and I was frustrated. Now I can communicate with you as events unfold.

Now we'll be available with data and to answer questions over the entire weekend and have asked our webmaster from Europe, David Cross, to be available to get messages out to you today and tomorrow. He agreed and we owe him a vote of thanks. This report is written in North Carolina, but is transmitted via Sweden where David often works. While I might be updating and you perhaps reading at 6PM our time, David will be working at 1AM his time.

My messages last week warned of the need for conservatism at this time and the risks of a market collapse. Does this mean I knew that Nasdaq and the Dow were going to collapse on Friday? NO! The crucial point I've been trying to bring across in my writings is that we don't know the future. Investment managers, analysts and economists cannot predict markets any more than weather analysts can guarantee tomorrow's weather.

Yet we can know what's most likely to happen assuming the past repeats (as it normally does). We just can't pinpoint the exact moments. So every fiber of my 30 years experience has been screaming that a crash would come, soon. Yet I did not know exactly when. The May 6 to June 21 dates I have suggested seemed a likely spot. This is a time when the world population will be restless.

The crash now is not good news because this means we now have to pass through this uncomfortable May-June period carrying the specter of this collapse.

The bad, bad news is that yesterday's plunge at Nasdaq and in the Dow may not be the end. Worse could be in store as there are two areas which pose special risk.

First, equity markets themselves could slide further, especially in the U.S. because it's the greater fool theory that has kept most equity prices afloat. Investors bought or held shares at prices beyond any fundamental sense believing that someone else would buy them later for more. There has been no fundamental reason to buy most shares at Wall Street or Nasdaq for some time. Prices have been so high there was no semblance of yield or even hopes that companies could grow enough to create a reasonable yield.

High tech and Internet shares will lead the way. They are most inflated. Too many investors have been walking on untested waters investing in science fiction that they hoped would become real. Now as 30 years ago when Wall Street collapsed and 20 years ago when gold was 869 an ounce, many novice investors are feeling the impact of fear for the first time.

Many more may bail out on Monday. We could see another big drop. But I don't really know. Neither do the other experts. Half will say markets are headed back up. Half will say they are headed down. Only half will be correct, but all will be guessing (in an educated way-yes, but still guessing).

My second concern is the stability of the U.S. dollar. This is an area of risk too many investors have ignored. I'll send you more about this in a later message today.

Over this weekend I'll share how to react in equity and currency markets where the best we can do is make an educated guess. For more on this click to: www.garyascott.com/news/wr0200.shtml. Please invite your friends to log on as well.

Now the good news. Stock markets never have problems, only humans who fail to respond with how markets act and react have the problems. This is something we can know and do something about! So whatever your position, this is not the end of the world. There is a way to react which can make your life better rather than worse.

When the market crashed in 1970, it left me with a $1,000,000 loss, wiped out my savings and job, left me stranded in Hong Kong (barely speaking Cantonese) thousands of miles from my family and friends. That crash left me deeply in debt with a high flying lifestyle with no income support and no understanding of what was going on.

This was the best thing that ever happened to me!

So stay posted to our site over the weekend and have good investing and business. You'll get enough spectrology elsewhere. Here you will gain information on how to deal with markets as they unfold regardless of your position.

Most of all enjoy all the sweetness in every day of this spring. Look again at the blooms and buds. Feel the fresh air and cleansing rains. Smell the gentle breeze. These are the things (not a rising economy and stock market) that are the precious gifts. Right now as I am writing this, Merri is happily picking handfuls of new dandelion greens and flowers for a dandelion spring omelette.

Be sure to send your questions to me at marketcrash@garyascott.com. I'll post them and provide answers on the site.

Where Are Currencies Headed?

Later on April 15, I sent the following message: Earlier today I reviewed the concerns we should have about equity and U.S. dollar currency markets. I would like to share some more thoughts about the currency problem we could face now.

For years strong demand for the dollar and high interest rates have kept the dollar propped up while the U.S. has created record trade deficits month after month. This has created a negative demand overhang we should not ignore. Two more very negative facts affect the buck now.

First, two government reports just came out suggesting the beginnings of inflation. Secondly, Congress just passed a highly inflationary One Trillion+ budget that reduces tax and increases government spending. This budget is based on huge anticipated surplus. Unthinking government planners and Congressmen have projected our economy as if it will always rise at stellar rates. In their fear to be seen as doomsayers during boom times, they ignore historical fact and act just like novice investors. Furthermore, dollarization by other countries such as Panama, Ecuador and Argentina have put an additional strain on the U.S. monetary policy.

All this means a wave of selling could hit the dollar as wise investors hedge their bets and foreign investors get out of the U.S. market and convert back to their own currency.

How low can the dollar fall? No one knows this, but we can look at history to give us clues. When the market crashed in the 70s, the greenback fell from 400 to 150 yen and from four German marks and Swiss francs to less than two marks and francs. This time round fundamentals are different, but we can see in recent history that the dollar can fall as low as 80 yen per dollar, in which case the greenback could drop 20%.

This increases danger we have everywhere. There has been a positive symbiotic cycle in the relationship between Wall Street's (and Nasdaq) health, inflation, interest rates and the buck.

Low inflation has kept U.S. dollar interest rates down. Low interest rates have helped U.S. share values rise. Rising share values have created demand for dollars and the strong dollar has kept inflation low. Now the cycle has been broken in three places at once (a rise in inflation-rising interest rates and crashing markets). Who knows where this will go?

At my website I am happy to share my course "International Currencies Made EZ" that explains how to react in volatile currency markets. For more on what to do about a falling U.S. dollar. To get this course free click to: http://www.garyascott.com/news/currez/

After the Crash

Fortunately the April 14 drop did not lead to a total collapse and we have gained some time. Here are my comments after U.S. equity markets opened and rose: Market Recovery? The markets have looked better after last week's crash which may give many of you more heart. Reality is that whether it rose or fell, reaction should have been the same. Investors, except the few true, day time traders who make this a profession, should not be investing in ways that short term market fluctuations affect.

My answer to the questions from the reader below confirms this fact. QUESTION: Gary, What do you know of the shares of suite 101.com BOWG. Heard on the Grapevine, it's a good one to have but with the recent Nasdaq problems it is a poor risk. Note that the Nasdaq is up 1.65% at the present time. Share price of above is 2. Wait to hear from you. Mike C.

ANSWER: Mike, In talking with thousands of investors over the past thirty years all I have ever heard they got from the grapevine is sour grapes. Investors should not invest in shares! They should invest in businesses that they know and understand and have thoroughly studied. They should invest in management teams they have researched and are willing to back for the long term. They should invest in businesses with growth prospects that have some type of unique competitive advantage. Investors should buy shares only after they have inspected enough to know the industry, the management, current and future potential of the business. Price only matters when it comes to buying shares of such businesses at a reasonable price. The grapevine rarely yields any of this data.

Furthermore a recent study unveils the fact that almost none of the millionaires in the U.S. created their original wealth by investing in stocks. Even after they become rich they hold an average of only 25% of their wealth in publicly traded stocks. The richer they are, the lower the percentage of public shares held.

The key to success is not from getting rich off outside tips. The real strength I find that most investors forget they possess is within them- selves. Each of us has some unique knowledge, information and experience that makes us interested and expert in some segment of the marketplace. This is where we should focus our attention. If we are bankers, look for opportunities in banking. If we collect garbage, don't forget that waste management has created some immense fortunes. We don't have to just look at Wall Street and NASDAQ to make these investments either.

In fact this new research shows that having your own business is the easiest way in the world to become rich.

Best selling author, Dr. Thomas Stanley, in his new book "The Millionaire Mind" recently confirmed this fact when he interviewed millionaires across the U.S. and found that the highest percentage (32%) are private business owners. No other group or profession even came close (senior corporate executives ranked a distant second with 16% of the nation's millionaires with attorneys third at 10%, MDs at 9%). These millionaires stated that they stuck to their businesses because this was something they could control in bad times. They dislike the stock market because it was beyond their control. Most of them accumulated their wealth in ways you would never imagine. For more details on this click to my website at http://www.garyascott.com/ezbahamas.shtml Gary

Questions

These messages brought a frenzy of questions and replies from the eClub's many advisors around the world. Here are samples.

QUESTION: Although I live and work in London I also have business ties in Australia and will shortly be selling a piece of property in Sydney which will hopefully net me about A$ 350,000. With recent turmoil in the markets I am at a loss as to how to invest this money. I am reluctant to transfer this money back into GBP as the Australian dollar is at an all time low at the moment and has been for some time particularly against the pound. Are there any banks that you know of in Sydney that would entertain the idea of your Borrow Low-Deposit High technique? I have to say that most of my investments are in property which always does well for me but I am unsure this time. Will the Australian dollar recover against the pound, as I think it will or am I fooling myself? I do use offshore banks and so am familiar with some of the major ones-perhaps it would be best to invest via some of the good European banks, but keep the asset in Australian $$?

MY ANSWER: Two of the E-Club advisors Jyske Bank and Anglo Irish Vienna can offer you Borrow Low – Deposit High services based on a Australian dollar account. I still hold some Australian dollars and share with you this dilemma. Yet I feel that the pound has been closely linked to the U.S. dollar during this last five year's of great dollar strength. This strength (despite the huge trading deficits in the U.S.) is linked in part to great demand for the dollar created by foreign investment into Wall Street. If the Dow and Nasdaq correct (every fiber of my experience tells me they will), then the dollar is likely to fall. I'm betting that pounds will slide with the greenback. I'm also betting the pound must eventually join the euro and will slide somewhat before going in. Thus I still hold my Aussies and Euros despite their lower return and current reduced parities. Rarely do currencies of this ilk fall and just stay down forever. However my goal as a writer is to give you more than just investment advice on what type of investment to currently buy. I aim to provide you with credible, usable information and contacts. Gaining information about when to hold or sell is as important as knowing when and what to buy. Therefore I'll pass your question along to our board of advisors. These advisors are valuable contacts I have worked with for many years. I hope they can not only answer your question and fill your current needs now, but be able to provide a follow up service that keeps you current on how your decision fits your future needs.

ANSWER: Teddy Christiansen-Jyske Bank: I do not think that any Sydney Banks are doing the investments like borrow low, deposit high, you might have to use an overseas bank like Jyske Bank. This is not really a problem, as we are using ON-LINE system in order for our clients to have access to the accounts/investments 24 hours every day. The GBP is very strong and might depreciate against the EURO as UK is a EU member country – if so the Australian Dollar will be stronger – which is likely, as the AUD is weak itself within the USD block. Teddy Christiansen.

QUESTION: What about markets like H.K.,China and India which were down so much?

ANSWER: Richard Radcliffe-Anglo Irish Bank-Isle of Man: Australia like everywhere else saw the telecoms, media and .coms race ahead as momentum investors drove them higher. Rising interest rates, which increase the discount factor applied to the projected, but (very) uncertain future earnings of most of these companies, have caused a retreat. All stocks will come under pressure from rising rates, but those with good earnings, strong cash flow and decent yields will outperform as more air is forced out of the internet related bubble.

Australia is not a market I spend a lot of time on as it is so small in global terms. If I had to put a small portfolio together I would use ANZ Bank, National Australia Bank, QBE Insurance, John Fairfax, Woolworths, Amcor and Brambles (on a pull-back). For investors looking to buy a spread of Australian assets, the London traded Australian Opportunities Investment Trust, which can be purchased at discount of 16% to net asset value, should be considered.

Sterling is expected to remain strong against the euro in the near-term as U.K. growth is stronger than that in Europe, the budget was expansionary, this will lead to U.K. rates having to rise more than those in Europe. Against the dollar sterling will stay within its long-term trading range of 1.54 to 1.70. I expect it to make a slow recovery towards the 1.62 level by the year end. If sterling rose above that level I would consider hedging at least half of my exposure.

If I had funds to gamble in the currency markets, I would short the yen against the euro. This has a positive carry, the Japanese government wants to weaken the yen to aid its exporters and the euro is oversold. Additionally the net outflow of investment capital which hurt the euro last year is beginning to reverse this year. Once everyone is short the euro there is only one way it can go, the snap back will probably see it move to the 1.10 level, before weakening again.

At present I am avoiding India and China. I am underweight Hong Kong which will suffer from rising rates due the composition of its market, which is composed mainly of rate sensitive financial and property stocks, with a measure of technology. Additionally the friction between Taiwan and China encourages a cautious approach.

ANSWER: Teddy Christiansen-Jyske Bank: The Asian markets, like the U.S., had started to experience performance that was limited to a very small segment of the market, specifically the new economy stocks. This has now largely corrected itself. Performance will broaden out to the more traditional stocks. specifically, look to companies that are reporting and are likely to report better than expected earnings. The Asian recovery is likely intact.

ANSWER: Anglo Irish Bank-Vienna: YES – but we would stick to investments in well established, (strong profit history) companies.

ANSWER: Larry Grossman-Sovereign Intl. Asset Management: What I have to say may seem radical or even unpopular but needs to be said none the less. My take on the market will probably be quite different than other advisors.

First of all, no one should really be surprised that the markets have been extremely volatile or have declined this year. Historically markets have not done well in a period of Fed tightening. One only has to go as far back as 1994 to see what kind of a market we experience when the Fed raises rates several times in succession.

Secondly, markets do not like uncertainty or times of transition and for several reasons this is one of those periods. The current uncertainty comes from several different things. Are we at or near the end of a business cycle? Is inflation appearing and likely to increase? How high will the Fed have to raise rates to try and stop this potential inflation? These are all questions the market is wrestling with and most of us have heard before.

What you may not have heard before though is that there is another question that has been voiced by only a select few. You may have heard it like this, "Is it really different this time?", or you may have heard it as a statement, "it is different this time". Most traditionalists do not like to hear statements like this. The reason is that there can be a huge risk in thinking that the old rules do not apply or that a new set of rules are now in play. Let's face it, there is a huge risk in thinking that things are different. But, sometimes they really are.

I recently read the comments of Portfolio Manager, Robert Loest, Ph.D., CFA. Dr. Loest has done an incredible job as a portfolio manager even this year, which has been a very difficult year. He used a very interesting analogy I would like to borrow with all credit to Dr. Loest. However, it is an excellent example of what we are experiencing currently.

Originally we were a society called "Hunter-Gatherer". The only important measurement of value was the ability of a person to hunt or gather. Next we became an "Agricultural Society" and the basis for value changed to the ownership of land and what it could produce. For example, the yield of grain per acre. Suddenly value was measured in a whole new way.

The next period was the "Industrial Society". The basis for value was no longer the yield of an acre. Can you imagine the shock someone experienced when they found out the ridiculous multiple that was paid for a factory. Why it was many times greater then the potential yield per acre of the land. People must have thought that these things made no sense and that people were paying crazy prices for land.

And now we have entered the "Information Age". Once again you have people who are saying it really is different this time and you have people who are saying that we have to play by the old rules and that talk of it being different is crazy talk."

Yet, if you are reading this by email or on the web, then maybe you know it really is different this time. So, let me bring you back to reality. Should you pay a price that is a multiple of hundreds of times the revenue stream of companies who have never earned a dime? Probably not. Visit our Web site www.siam.com and read the article I wrote last August about internet stocks. It is called, "The Internet Bubble Goes Pop". I called for a break in the market a year ago and looked pretty stupid for awhile. With that said, I also talked about the probability that we were entering a new era when we would find new ways to evaluate companies. And I said that there would be winners and losers. I suggested sticking with the real companies who had a strong possibility of making money.

Where are we now? I think the cycle in the U.S. is much farther along. I have been suggesting to clients that valuations looked much more attractive outside the U.S. I believe the Internet and the revolution it is creating is here to stay. I would be buying blue chip European, and small to mid cap global stocks. These dips will present us a strong buying opportunity. The economies of most of the world markets are strong and likely to stay strong. The U.S. as I have said is late in the cycle and I would underweight my exposure to the U.S. However, I would not avoid the U.S. There have been some very strong earnings from good companies recently that have surprised people on the upside.

ANSWER: Michael Keppler-Keppler Asset Management: Our April Major Markets Country Selection Strategy Update shows tremendous rebounds in our value portfolios. As an example, Berkshire Hathaway, the largest holding in the Global Advantage Major Markets High Value Fund is up 42 percent from its March low and still very attractively priced. I believe, now is a good time to invest in good old global value portfolios, like the Global Advantage Major Markets High Value Fund, a global equity fund managed by State Street Global Advisors and advised by Keppler Asset Management.

The Global Advantage Major Markets High Value Fund was up 60.1% last year and should continue to do well over the next 3-5 years. The latest net asset value per share was Euro 1,417.42 as of April 12, down 2.5 % from its all-time high reached on March 29. The fund trades every Wed. and the last trading day of each month. For more information, Stephen Marx at State Street Bank Luxembourg Tel.011352 4640 10379, fax. 011352 2643 1325.

Here are the arguments (from our April Strategy-Update) why our Top Value Strategy is expected to do well over the next 3-5 years. About 2/3 of the Global Advantage Major Markets High Value Fund assets are invested according to the Top Value Strategy, the rest is in exceptional companies. (The largest holding is a 10% investment in Warren Buffett's Super Value Stock "Berkshire Hathaway"). 5% is in cash.

There are some indications that a shift from "New Economy" stocks into "Old Economy" stocks may have started. Should this trend persist – and I strongly believe that it ultimately will – it should give the Top Value Strategy plenty of room for superior performance in the future. Based on our analyses, the Top Value Model Portfolio is now about 24% undervalued, while the cap-weighted MSCI World Index is about 18% overvalued. Our valuation work is based on current valuation, current relative valuation, historic valuation and historic relative valuation. But not only are our top ranked markets attractively priced compared to the MSCI World Index, the actual annual growth rates of earnings, cash flow, book value and dividends compare very favorably with Europe, the United States and with the MSCI World Index:

Annual Growth Rates (%)      Earnings Cash Flow   Book Value  Dividends          
(as of March 31, 2000)
Top Value Model Portfolio 21.3 14.1 4.2 10.1
Europe 15.8 4.6 5.0 8.9
USA 14.8 6.3 9.2 -1.6
MSCI World Index 10.9 3.6 5.7 5.4

There is no change in our performance ratings this month. The Top Value Model Portfolio contains Australia, Austria, Belgium, Germany, Hong Kong, and Norway at equal weights. Our current ratings suggest that these markets offer the highest expectation of superior performance.

MY ANSWER: After Asian equity markets collapsed in 1998 and looked like real losers, they staged a strong rebound so they once again currently looked strong. From a market timing point of view the time to buy was a year ago. Now these markets are at best in a neutral position from a momentum point of view. In other words, they do not offer any special opportunity from a bounce. Asia lags behind the U.S. in ecommerce, etc. and some opportunity is in these by getting into fledgling Asian information era business that have proven their worth in the U.S. Asia reserves a position in most global equity portfolios, but look for Asian businesses that you understand and believe have a competitive edge in their industry that will be successful long term.

QUESTION: The Australian Share Market crashed by about 6% today, wiping off some $40 billion dollars. It was mostly the .com shares. The blue chip stock fell only marginally. Probably a good time to pick up a few more good solid blue chips here maybe.

ANSWER: Andi Kaegi-BPCS: The Australian market also looks attractive on a long term basis and I would use the same approach as described in the answer regarding Asian shares.

ANSWER: Anglo Irish Bank-Vienna: YES, probably. Anyway we think that blue chips are always a good choice for a solid, long term investment.

ANSWER: Teddy Christiansen-Jyske Bank: You must not take a short term approach to the markets. Remember that the odds of having a bad experience or experiencing a loss drop to almost zero if you are willing to remain invested for a 5 year time frame.

QUESTION: It has been pointed out by Adrian Van Eck that the fed has pumped 78 billion dollars into the money supply the last three weeks and yet nobody has even commented on this. Was this a cushion to save the markets and economy when "they" decided to drop the markets? Also, why is gold not reacting to all of this in a dramatic fashion?

ANSWER: Teddy Christiansen-Jyske Bank: Gold has been an under performing asset class for quite sometime now and is likely to remain so for the foreseeable future. There is too much gold being sold by foreign governments and other entities to allow for a prolonged rally. Additionally, there is heavy selling of gold by y2k investors who bought the metal expecting the worst. Europeans and Americans buy gold for completely different reasons. Europeans buy it as an insura


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