Hold back from buying more stocks right here, with the possible exception of Asian closed-end funds, until the current setback shows signs of stabilizing. The long-term picture is very bullish. Our stocks generally continue to act very well, with one or two surprising exceptions like Novell and Nokia. None of the under-performers, including these two, warrant selling, although we would hesitate to buy more into weakness. There might be something behind the weakness, or at least the lack of strength, that justifies the comparatively lackluster performance.

Market Conditions

The breakout to new highs in the Dow and the cash NASDAQ index suggest that strength is likely to continue, although there is always the possibility that the pullback at the end of last week will lead to a more significant pullback. At the top, the indexes and many individual stocks were quite overbought. The trouble is that selling good stocks because they are temporarily overbought may mean that you get left behind if they keep on going. It would have been all too easy to cash in a stock like Applied Microcircuits anywhere on the way, only to be left behind with the price more than doubling what it was at our entry point in April. Similarly, many stocks have shaken down only to rebound once temporary selling dried up. The temporary weakness that we noted in Hewlett Packard and IBM now looks like a completely routine setback.
The technical picture on the monthly and weekly charts for the NASDAQ index and for most of our stocks is superb. It looks likely that the low on August 10 constituted the annual cycle low. The general market has actually done rather little this year so a relatively small increase in the general market could lift our stocks quite a lot.

Greenspan and the Fed

Last week Greenspan pronounced profits to be overstated because of options given to employees instead of money. We take his point and agree with it. In the meantime, however, we have thought of a contradictory point that may be more powerful. Most rapidly growing companies have huge outlays for research and development. In reality, this may be capital expenditure leading to development of new products. On the other hand, it may be charged correctly as an expense, thereby in reality lowering reported profits, and possibly much below what is really happening. The same goes for advertising and almost any current expenditure on marketing.

It occurs to us that the Fed is unlikely to raise interest rates again
before Y2K. If anything, they will want easy money going over year-end so as not to exacerbate any other Y2K problems that might occur. So relatively easy money is likely to go on finding its way into stocks which, in any case, are being well supported by revenue and profit growth. At least that can be said for the kind of stocks that we buy, if not necessarily for the general market.

Current Recommendations:
(Entry Date, Entry Price, Last Close, Code, Name)

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

99/05/12 39.75 51.31 ADI Analog Devices
99/04/06 49.00 94.13 AMCC Applied Micro Circuits
99/08/06 78.50 80.63 AMGN Amgen Co
99/06/14 30.63 31.19 AOG Alberta Energy Corp #
99/06/14 38.28 44.11 APA Apache
99/04/06 92.13 108.62 ASCND Ascend Communications
(acquired by Lucent 1.65 shares to 1)
99/06/14 109.78 110.03 BPA BP Amoco Plc
99/05/12 94.38 131.63 BRCM Broadcom
99/08/06 26.38 32.25 CHIR Chiron Co
99/05/14 40.69 45.25 CLS Celestica #
99/05/12 117.50 68.50 CSCO Cisco (split on 99/06/21 2:1)
99/06/14 14.59 18.28 CXY Canadian Occidental Petroleum #
99/05/12 54.61 56.52 EDS Electronic Data System
99/04/06 132.13 60.56 EMC EMC (split on 99/05/28 2:1)
99/08/09 86.31 42.13 ENE Enron Corp (split on 99/08/13 2:1)
99/06/14 31.13 32.38 ERICY Erickson
99/04/06 51.50 55.50 FLEX Flextronics
99/06/14 60.14 67.20 GLW Corning
99/08/09 48.75 45.19 HAL Halliburton Co
99/05/14 84.52 104.30 HWP Hewlett-Packard
99/05/12 220.77 123.75 IBM IBM (split on 99/05/26 2:1)
99/05/14 58.13 130.25 IDPH Idec Pharma
99/08/18 78.38 82.94 INTC Intel Corp
99/04/06 60.83 62.48 LLTC Linear Tech Corp
99/04/06 32.75 55.00 LSI LSI Logic
99/05/12 25.06 23.31 NOVL Novell
99/04/06 163.19 83.81 NOK Nokia (split on 99/04/09 2:1)
99/04/06 65.66 43.61 NT Nortel Networks # (split on 99/08/19 2:1)
99/06/14 93.56 104.44 PHG Phillips Electronics
99/05/12 106.06 95.81 PMC PMC Sierra (split on 99/05/14 2:1)
99/08/18 169.88 183.75 QCOM Qualcomm
99/05/12 49.88 81.75 QLTI QTLI Phototherapeutics #
99/06/14 21.39 25.36 SDC Santa Fe International
99/06/14 35.97 51.47 SFA Scientific Atlanta
99/04/06 53.75 73.75 SLR Solectron
99/08/19 131.14 28.33 SNE Sony
99/04/06 130.94 76.19 SUNW Sun Microsystems (split on 99/04/08 2:1)
99/08/06 31.00 29.06 TLM Talisman Energy Inc
99/04/06 109.48 79.41 TXN Texas Instruments (split on 99/08/16 2:1)
99/05/12 87.19 101.02 TYC Tyco

In addition we recommend the following Closed End Funds, based on the assumption that Third World economic downturns are not going to last forever and that their stocks are now showing superb technical strength

99/04/06 6.63 9.75 FAK Fidelity Adv Korea
99/04/06 8.88 12.13 IFN India Fund
99/04/06 8.05 11.67 JOF Japan OTC Equity Fund
99/04/06 11.00 14.69 KF Korea Fund

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