The Fed's interest rate announcement has arrived, and it has bombed. The
result is a serious and total breakdown in the major stock indexes including
the Dow Jones.

We were really expecting a minimum of 3/4 of a point cut in rates. The half
point cut is definitely far too little and far too late. In October 1992,
when conditions were nowhere near as unfavorable as they now are, rates were
a full two percentage points below where they are now. And the major trend
in stocks at that time was upward, not down, as now.

The problem with business conditions now is that we are not just seeing a
backing up of inventories but also the end of a capital investment cycle. It
seemed to us likely that a dramatic lowering of interest rates might kick
start the locomotive one more time. Now, it is our view that the
probabilities are against that happening,

We still expect closed end bond funds and top quality bonds to increase in
value in addition to paying dividends. We also think the probabilities are
favorable for oil and gas service companies and for natural gas producers.
Otherwise, we expect a general capitulation of stocks across the board,
including many stocks which might previously have been considered defensive.
Above all, we expect the stocks of financial institutions to start joining
NASDAQ on the way down. It is guaranteed that in any serious economic
slowdown, such as now seems to be in prospect, the banks will have to take
some serious loan losses. In some cases, these provisions could be
life-threatening, as they were during the S&L debacle.

Given our new thinking about the prospects for stocks, we want to offload
our few remaining high tech stocks, regardless of price. We also want to
initiate some new short positions. Our list may seem relatively
conservative, and it is. More adventurous traders could still enter new
short positions in most high tech stocks.

Note that from a technical standpoint we now see the following potential
downside targets: for the Dow Jones Industrials 7400, for the S&P 500 930,
and for the NASDAQ 100 a level of 1000 or lower. This is not the end of the
world. In fact, for the Dow Jones, it would be rather less than has occurred
in many previous bear markets. Consider, however, that many Dow stocks are
still extremely expensive by most normal criteria on the basis of earnings
forecasts for this year and next. Consider what might happen to
price/earnings ratios and valuations as a result of profits halving from
forecast levels. Hard to believe in the light of recent history for the
market in general, but note that it has already been happening to stocks
like Lucent and Nortel. Citigroup would not be cheap if it halved in price
from its current level. If its profits fell by 50 percent, the stock could
decline from here by 75 percent.

We don't like to sell out what we see as stocks in great companies, or as in
the case of SVNX, a great potential. But even these stocks could go down by
a further 50 percent or more from here. So out they must go.

New Buy Recommendations:

None.
New Short Sales

Sell short now: Citigroup (C), McDonalds (MCD), Juniper Networks (JNPR),
Compuware (CPWR) and Amazon (AMZN).

Stock Positions to Sell/Exit: 714 Solutions (SVNX), Symantech (SYMC) and
Texas Instruments (TXN).

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 3/16

1/4/01 724 Solutions (SVNX)# 18.72 12.81 SELL
2/1/01 Acm Government Income Fund (ACG) 8.07 8.32 B+
2/1/01 Acm Government Opportunity Fund (AOF) 7.99 8.42 B+
12/18/00 Alberta Energy Co. (AOG)# 42.63 42.55 H
12/18/00 Kinder Morgan(KMP) 50.00 58.80 B
12/18/00 Occidental Petroleum(OXY) 21.88 23.85 B
2/1/01 Pioneer Interest Shares (MUO) 11.95 11.69 H
12/18/00 Precision Drilling(PDS)# 33.19 36.72 H
1/4/01 Symantech (SYMC) 38.38 41.44 SELL
1/4/01 Texas Instruments (TXN) 50.19 31.10 SELL
12/18/00 Trans Canada Pipelines(TRP)# 11.19 12.42 B++
12/18/00 Ultramar Diamond Shamrock(UDS) 28.38 34.92 H

02/12/01 US Treasury 20 Year Bonds(USH) 104.21 106.17 B
Rolled from the March contract and price adjusted

Short Sales

12/18/00 Coca-Cola(KO) 54.00 48.51 Hold Short

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