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To: Paul van Wijk who wrote (27352)	1/11/1998 9:04:00 AM
From: McNabb Brothers	Respond to of 176387

Paul, <Am I right that the continued rise of Yahoo & Aol after you start shorting them make you run out of "bullets".> Sure one will if they do not have enough bullets! We always try to only use about 50% of our margin when we want to be fully invested in our short positions! That way if they continue to run up we still have plenty of margin to ride any moves against us and sell more if we think it is still a good short! The 50% rule is in our trading accounts only and if we do get squeezed we will look at the situation and will borrow some margin from our long accounts to get us by if we still believe in our position! <In another, is the strategic reserve increasing because of your bad timing on those?> Not sure what you meant by this statement, but as far as bad timing I've always said that we are not great timers in taking our positions rather it be short or long positions! We started selling PRST at $140 (pre-split) to see it go to $200 (pre-split) before it broke and started selling ZITL at $30 to see it go to $72 before it broke down! So the move in AOL and YHOO against us so far is not a major move against us as compared to some of our picks in the past! <There is another question I want to ask you. I assume you know that there is a relation between the P/E of stocks and the interest-rates. Interest rates are dropping fast last months so stocks deserve a higher P/E. At the end everything comes to getting the best return on invested money.> Stocks do not always go up when interest rate drop! Look at Japan! Sure most cases you are right but like I said before I believe interest rates will continue to drop and our stock market will continue to drop also! And in the end Paul, it's sometimes best to get a return "OF capital" on ones invested money as opposed to a good return "ON capital"! At this point in the stock market cycle I'm more concerned with a safe place for my money and want to put it in something that I can expect a return "OF" my capital, and not concern with a return "ON" capital as much as of right now! the words OF and ON are very important right now to me! At times a plain old CD in a bank can be a very good investment or to park ones money in a good quality money market fund can be a good investment! <Don't you think that this will lead to a stronge rise of the companies that don't get hurt by "the Asian flu".> When things happen as they are in Asia, I believe everyone will be effected sooner or later! Everyone mentions Mexico a few years ago as an example as to what we are dealing with as far as the Asian situation, but I think the Asian situation is much more a concern than Mexico was a few years ago! After all there are many more people in Asia and some of those places are have much more wealth to lose than Mexico had to lose! <Another question to you is "where do you think all the money that is "on the side-lines" will go".> All the money on the side lines can evaporate in a matter of minutes if the market continues to go down! I know it is hard to understand at times even for me, but the stock market is only based on what people are willing to buy something for! If people decided to not buy, than the stock market can be a house of cards! It is not a net net game and can get hurt very quickly! Take a look at any Asian markets that has declined and tell me where that money has gone? All up in smoke in most cases! <Let me know what a senior bear like you think about it.> You keep calling me a senior bear, but remember I have a large amount of longs also, so you could call me a bull and a bear depending on what stocks you are talking about! At this time though I would have to consider myself much more on the bear side than the bull side! I will be looking at the over seas markets with interest tonight, but no matter what they do I will stay bearish for the time being! With all the talk going on between the goverments it may prop a market for awhile, but it will not last IMO! Hank