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To: Lucretius who wrote (110002)	6/24/2001 3:28:41 AM
From: patron_anejo_por_favor	Read Replies (2) \| Respond to of 436258

From today's Barron's...interesting comments from Felix Zulauf (FWIW, I think he has it pegged perfectly): interactive.wsj.com Felix Zulauf Barron's: In January you were grim but sadly accurate. Are you still so bearish? Zulauf: So far things are going according to plan. I said this was the end of the 18-year bull market and a secular break. Even after the declines in a lot of stocks and indexes the market is trading at high valuations. The changes in the economy, not just the U.S. but the world economy, are such that we will not see strong profit growth for the next few years. We might even seen some declines. Corporate profits this year will probably decline by 15% or so for companies in the S&P 500, and next year they could fall again. Historically, corporate profits in Europe and the U.S. have grown by about 7% a year. A lot of investors came to think 20% growth was a given. Q: For profits and the stock market both. A: Investors should know that when valuations are high and they invest for the long term, returns will be low. If valuations are low, returns will be high. Many forgot that because they were investing for the short run. They believed you invest today and you retire rich tomorrow. Q: And many did, at least for a while. A: The real issue is what's happening with the real economy. It will take several years to unwind the overcapacity, overinvestment and bad debt in the technology and telecom sectors, and profits in these areas will be dismal. Yet each time the Fed lowers rates, the bulls run these stocks up again. They could be in the midst of a rally right now, but it is a bear-market rally. Eventually the market will fall again, because over the long term there is not as much value in technology as many people thought. These companies do not just unwind high inventory for two or three quarters and then resume growing by 30%. Q: But tech and telecom aren't the whole market. A: The situation in the information-technology industry eventually will hurt employment in other sectors, and consumer confidence. The weakness in IT could spread out and become more broad-based. Of course, Alan Greenspan knows that, but he's in a bad situation because he was one of the engineers of the boom -- with all the money he threw at the system when it really was not necessary. Now he wants to cure the problem with the medicine that caused it. In the short term the problem may go away, but it will be even worse thereafter. Q: Do you still expect the Nasdaq to fall to 1000? A: It will continue to sell off, but in a zigzag fashion. In January I said the Nasdaq would decline to 1000 or below, and I still believe that. But whether it will rally above 2000 first, I cannot predict. If the Nasdaq climbs much above 2000, it would be a great opportunity to short these stocks again, because I think they will be cut in half. Nokia, for instance, is a sacred cow but the news is changing. Nobody but Nokia makes money on handsets, and there is industry capacity for 750 million handsets a year. Original projections this year called for 550 million handsets to be manufactured, and now they're down to 400 million, about flat with 2000. Q: Changing direction, how do Europe's markets look to you now? A: Absolutely the same. The European markets have been even weaker than the U.S., because the U.S. at least has the help of liquidity, whatever that means. And short rates in the U.S. will probably come down another 200 basis points. But that and fiscal stimulus will help only for a quarter or two. It's peanuts compared with all the problems out there. Let's not forget that we have created a lot of debt over the past few years and a lot is not of good quality. We'll have to go through an unwinding process and it will take time. Q: How do you trade this market? A: We are a hedge fund. Right now we are long value and short growth. We are waiting for noncyclical sectors to roll over to increase our short positions. We nibbled earlier this year in noncyclicals, but our bigger shorts were in tech. We closed out a lot of tech shorts in the past few weeks. Q: You must have done rather well. A: So far this year we're up 7% compared to our benchmark, the MSCI Europe index, which is down 11%. I think more money will be made on the short side for the rest of the year. We'd recommend shorting the sacred cows in technology -- the Ericssons, Nokias and ASML -- and noncyclicals such as Novartis and Richemont. On the long side we like Ciba and Solvay, both chemical companies. We had been big in energy, but we're cutting back. A lot of guys have been moving into energy, and crude prices will weaken with the world economy. The stocks aren't overvalued, but conceptually they are ready to correct. Q: Let's talk about currencies. Is the dollar ever going to weaken? A: The dollar is much stronger than it should be based on economic fundamentals. But that probably has more to do with the lack of alternatives. You can't invest in the yen, because what is going on in Japan is far from what is needed. In Europe, nobody trusts the currency. I think the dollar will correct some against the euro, but whether it's a big or small move will depend on how the U.S. stock market behaves. Q: Thanks, Felix. Even funnier was Harpo's tech pick...none other than the 'Beemer!<G>