Stocks are now at the top of their recent range

The last bulletin said it looked as if the consolidation of recent months
would be resolved on the upside and that market conditions warranted buying
a few selected stocks outside our long-term preferred area of the oil patch.
Outside the oil patch our focus is on high tech embracing the general areas
of Information Technology (IT) and biotech. We see these as the two primary
growth areas looking ahead toward the horizon. Although there are many great
charts in such areas as various financial institutions, we don't care for
the reward to risk. For example, if the economy really were to slow, what
would happening to the volume of online trading or to the quality of bank
loans?

Normally, in a healthy bull market rising prices should feed on themselves.
This is exactly what we have not been seeing in recent weeks. Yes, there has
been an improvement in market breadth and many financial stocks in
particular have been rising strongly. However, there has also been a marked
deterioration in the technical position of many prominent stocks. The result
is that the balance of evidence in favor of a further upward move has
actually deteriorated even as the indexes have advanced. This is quite
unusual. Among the NASDAQ 100 stocks, we now see almost none that warrant
buying here, and many that look at best to be a hold.

This is a time for caution and almost certainly a time for selling down to
your sleeping level. There could easily be a slide into a low in October, as
so often occurs, and one that could take the general price level a long way
down. We are not saying it's going to happen, but just that market
conditions are currently very treacherous. Stock charts that look great
suddenly collapse. Others that seem to guarantee profitable short sales hold
steady or rally strongly. Worst of all for those trying to be cautious is
that apparently safe stocks are often neither safe nor do they have upside
potential commensurate with the risk of owning any stocks at all.

The failure of such stocks as Microsoft and Dell to do better augurs very
badly for the overall market. Day after day MSFT has refused to go up when
the indexes have advanced, and this stock represents approximately 15
percent of the ND 100 index! The fact is that even under the best of
circumstances, MSFT must now be regarded as having the near-term potential
to grow at no more than 15 percent annually, while its Price/Earnings
multiple is about 45. Even if these projections come through in the upper
end of what is expected, the downside risk for MSFT is that it decline by a
further 50 percent or more. In the event of any hiccup in the economy and
the delivery of any no-growth or negative growth results, the downside could
be a lot worse. A further problem with MSFT is, of course, that for years
its reported profits have not taken into consideration the grant of options
to employees. By some reckoning the company's obligations appear to amount
to several years of reported profits. Presumably if the stock declines, one
of two things has to happen. Either the cost to the company declines, with a
corresponding decline in the remuneration by means other than salary to
employees, or else there have to be more options issued.

Whichever way you look at MSFT, the stocks is neither technically nor
fundamentally attractive to own. If this stock and other leaders like Dell
continue declining, the prospects are not good for high tech stocks
generally. Other stocks that seemed to have the prospect of continuing
higher such as Coca-Cola, Walt Disney and American Express now look a bit
suspect. It is by no means a given that the Dow Jones Industrial can go
higher, and they could well go lower if only for an intermediate correction.

Dell's chart has significantly deteriorated along with expectations that
margins are shrinking even if sales growth holds up. Another cautionary sign
in the high tech world is what has been happening to telecom stocks, many of
which are down by 50 percent or more from their highs. Here there are signs
that the cost of next generation communication may be unsustainable. In
Europe there has been the dilemma that the likes of British Telecom and
Vodafone cannot afford to finance the next generation of technology but they
cannot afford to lose their standing in the marketplace. The result is
lose/lose for shareholders. Worse, the next few months hold out the prospect
of bond offerings by the telecoms that are beyond the easy capacity of the
market to absorb. This is a classic scenario for combining both higher
interest rates and an economic slowdown. If telecoms can't afford to expand
as rapidly as before or as rapidly as they had planned, their slowdown must
back up to their suppliers and by extension to the entire world economy.

A further wild card is what happens with energy prices. If they remain
relatively high, as we expect, that has to drain purchasing power from other
sectors of the economy, as occurred in 1973 and, with less immediate impact,
in 1990. The risk of an economic slowdown is in our view real for two
additional reasons. First, the growth of the money supply has at best
stopped and it may have reversed. Money makes the pony go, and a contraction
in the money supply leads to a bear market. A further major risk is the
overextended condition of the US public both to consumer debt and to margin
debt for stocks. Both of these could start imploding should any slowdown
begin.

For the longer term, we remain cautiously optimistic for stocks in companies
that combine a great franchise with high growth. A review of our current
recommendations suggests that all of these stocks are likely to survive in
the long term almost regardless of what happens to business conditions or
the market generally. We don't see dumping any of our latest purchases
arbitrarily except for Oxford Health Plans, if only because this kind of
stock has almost always cost more to buy back than you sell it for if you
get neurotic about staying in. Still, this is in our view an environment
where there is quite a lot of risk. We strongly recommend a relatively
conservative percentage of capital in stocks at all, and certainly none to
be held on margin.

New mad Renewed Recommendations

Despite the lackluster performance of some of our recommendations in
petroleum and oil services, we rate the reward to risk very favorable in
this general area. We strongly hold the view that energy prices are likely
to remain relatively high, and we also hold the view strongly that there is
little chance of the oil price going below $25 per barrel. The popular view
is that $30 oil is temporary, as it has been in the past. Our contrarian
view, as well as our reading of the charts for energy futures, is that $30
oil could become the new base price. The fact is that there is now extremely
little surplus production capacity in the world, many major oilfields are in
decline, and demand is growing, particularly in developing countries.

In this sector, we rate Suncor as the most desirable company we know of on a
fundamental basis. The stock was looking quite lazy for a while but sprang
back to life in the past few days. We have what may seem like a wild
projection today that it could earn its current stock price within the next
decade! AOG has been a disappointing performer but then so were SU and CID
for a while. We don't see intentionally buying more of our weakest stock in
the group but we don't see dumping it either.

Buy Mitel(MLT) $23.38. # We hesitate to recommend any new purchases outside
the oil patch. However we have here a company that has been going through a
huge long-term reinvention of itself after almost going down the tube. It's
worth recalling that the company was founded by the two entrepreneurs that
subsequently went their separate ways to start Newbridge and Corel. Also the
company's headquarters is in Kanata, Ontario, home of JDS Uniphase. MLT is
involved in its traditional line of PBX telephone exchanges which now
includes internet telephony. Recently the primary source of revenue and
earnings has been its semiconductor division. The third main area is
bluetooth wireless intranet communication. Recently and potentially most
exciting, is the announcement that MLT has developed a better, faster and
more economically produced fiber optic connecting device. Even without the
fiber optical sex appeal, the stock looks worth owning at current price
levels and the stock looks as if it could double or triple from here if it
maintains its apparent momentum of recent weeks.

Stocks to Sell/Exit

Sell Oxford Health Plans (OXHP). The recent experience is that stocks not
showing that they can go up, by going up, are likely to go down. So no point
in taking the risk of hanging on to this one.

List of Current Stock Recommendations:

Action Ratings

The following is the legend for designating immediate action for our stock
recommendations. The first is B, meaning the stock is timely to buy but the
case for doing so right here is not overwhelming. Either the stock may have
got ahead of itself and may be vulnerable to a retracement or else the stock
has been performing disappointingly but may simply be regrouping. B+ and B++
indicate stocks for which there is a technical case to buy now, with plusses
adding weight according to how many there are, up to a maximum of five.
Stocks rated H are ones to hold, awaiting confirmation to buy more or to
sell. SELL, of course, means what it says. It seldom pays to override this
designation.

Stocks marked # are eligible for Canadian RSP funds. Otherwise there is a
20pc restriction on foreign stocks held in these accounts.

First bought Entry Last

5/15/00 Alberta Energy(AOG)# 38.63 36.94 H
5/15/00 Apache Corp.(APA) 59.88 61.94 H
8/14/00 Applied Micro Circuits (AMCC) 158.94 188.56 H
8/14/00 Biomet(BMET) 33.25 33.81 H
5/15/00 British Petroleum Amoco(BPA) 54.44 56.13 H
5/15/00 Cdn Occidental Petroleum(CXY)# 26.13 26.81 H
5/15/00 Chieftain Development(CID)# 20.50 22.06 H
8/14/00 Ciena(CIEN) 162.88 197.94 H
8/14/00 Corning(GLW) 281.00 301.50 H
8/14/00 Enron(ENE) 83.75 84.88 H
5/15/00 Global Marine(GLM) 26.38 31.69 H
8/14/00 Medimmune(MEDI) 73.34 80.56 H
8/14/00 Novavax(NOX) 8.13 8.13 H
8/14/00 Oracle(ORCL) 81.94 84.63 H
8/14/00 Oxford Health Plans (OXHP) 32.28 27.50 SELL
8/14/00 PMC Sierra(PMCS) 214.38 235.88 H
7/10/00 Suncor(SU) 23.06 23.06 B++
5/15/00 Transocean Sedco(RIG) 51.13 59.13 H

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