Akt. Barron's Roundtable - m. Zulauf, Faber und Gabby Abby

verfasst von kingsolomon, 22.06.2003, 09:26

-->Monday, June 23, 2003


BARRON'S COVER



Happy Daze

Puzzled, yes. But the Barron's Roundtable pros still predict a strong rally
By LAUREN R. RUBLIN

THE MEMBERS OF THE Barron's Roundtable are a tough, temperamentally skeptical crew. But, to a one, these sagacious market mavens and money managers tip their hats to the ferocious rally that has added more than a thousand points to the Dow Jones Industrials since the stock market's lows in March. Just why stocks are off and running, they're not entirely sure, though short-covering deserves some credit. But that stocks will keep rising, albeit in sawtooth fashion, almost all of this illustrious crew is certain.

A buoyant market and intimations of stronger economic growth have been very, very good to the stocks and other investment ideas our crowd picked when we convened in New York Jan. 6. No wonder they were so eager to take our recent calls and a shot at picking new winners and sinners for the remainder of the year.

The Roundtable luminaries hold forth on myriad subjects, from the robust outlook for oil and gas concerns to the bond-market bubble just waiting to pop. Japan was a particular favorite this year among this well-traveled bunch, who like the Nikkei but fear for the nation's bonds. Charmingly blunt, as always, Marc Faber called Japanese government bonds the short of the century. Ever restrained, Felix Zulauf settled for the short of a generation.

Anyway, you get the idea. And we guarantee you'll get may more as you read on.

Art Samberg

Barron's: The market's up. Tech is running. You must be happy this year, Art.
Samberg: Happier than I've been in the last couple of years. I'm not sure I fully believe it, but I'm happy. The amount of liquidity built up in the system is huge. Still, nothing is being spent for productive purposes, so it's flowing back into financial assets for the short term. We're not going to get a clear picture of what's really happening until after Labor Day. Then we'll see if capital spending picks up again.

Q: Which means this rally is a stock-market phenomenon more than a real-world phenomenon.
A: Exactly. Things have stopped going down. They're marginally better, but oil prices are still high. I worry about corporate profitability more than anything. The conventional wisdom holds that companies got great leverage off very little revenue growth in the first quarter. That's simplistic. In reality, profits were really strong in the oil sector. Also, service costs are rising sharply, even though we supposedly have deflation. Insurance costs are going up. Medical costs are up. There is a lot of service-cost pressure on both consumers and corporations. That could lead to profit stagflation.

Q: An ugly thought. How do you invest under these circumstances?
A: You look for thematic areas that still seem to be intact. The world has gotten accustomed to trading everything. That's a fool's game in the long run. Everybody went after data points, but you have to find data trends and stay with them.

Q: Are you staying with your January stock picks? Most did quite well.
A: W.R. Berkley is still good. Boston Scientificis still good. Chesapeake Energy and Key Energy Services are still good. With oil at $30 a barrel and natural gas about $6 per million British thermal units, energy is looking better all the time. We like Maverick Tube -- a commodity play with increasing demand and lower commodity costs, which is hard to find in this world. The company makes oil-country tubular goods -- pipes. It's not a growth industry. It just cycles up and down. With demand up, the company's been raising prices. The stuff now goes for $650 a ton. On the cost side, however, hot-rolled steel prices have fallen to $250 a ton from about $330 in the fourth quarter of last year. And steel is about 55% of their cost of goods sold. With shipments and margins up, Maverick should earn about 80 to 85 cents this year and $1.85 to $1.90 next year. The stock is selling for 20, so it's just a tad over 10 times earnings. The company just signaled a weak second quarter but the stock went up, which shows that people are looking forward to greater drilling activity.

Q: Are higher energy prices the new norm?
A: I think so. There's been a lot of damage to oil wells all around the world, and the drop in natural gas inventories is pretty scary. We're about 55% below normal storage on an average five-year rolling basis, going into the summer season.

Q: What summer season?
A: Maverick benefits from this environment, but you also want to own a land-based driller. We own Patterson-UTI Energy, the second-largest land driller in North America. It's leveraged to gas. The company owns 340 rigs, and right now it's utilizing 192, or 56%. At the last peak it utilized 80%. Over time Patterson has sold for $2.5 million to $7.5 million per rig, and right now it's priced in the middle. Day rates are rising by $300-$500 per day. It costs about $7.7 million to build a new rig, but the company just bought 18 rigs for $5 million. They are buying another driller, TMBR/Sharp Drilling.

Q: What is the outlook for earnings?
A: They're leveraged to the upside. There is no short-term debt. The company will do about $330 million next year in Ebitda [earnings before interest, taxes, depreciation and amortization]. Valued at 12 times earnings, it would trade for about 46. The stock now trades for $32.50.

I'm focused most on natural gas. The big guys weren't looking for it. The small guys couldn't afford to drill for it. Some middle-sized companies, like El Paso, announced they wouldn't be able to drill this year because their balance sheets were ruined. I think natural gas stays north of $5 for the next few years. There's an outside chance of a crisis. We did not destroy enough demand last winter, despite the cold weather, so we ended the season with inventories much too low. We're not going to have enough gas this summer. Typically, you get a huge price spike, one so painful that people have to switch to some other kind of energy source. This is not a good set of circumstances if you want to believe in overall economic growth, which I still have a hard time seeing.

Q: You haven't mentioned technology yet. Does anything attract you at today's prices?
A: Macrovision. I love the secular trends. The company copy-protects DVDs. It's got a very profitable model and works on 45% to 50% operating margins. It acquires little companies that have copy-protection technologies, adding to their capabilities in that area. Sales and earnings did not grow in 2002, but they're starting to grow again. Revenues will grow about 12%-13% this year. Earnings will grow a little less than 10%. All areas of the business have been picking up momentum. The Globetrotter business, which copy-protects enterprise-software products, has ebbed and flowed because of the slowdown in enterprise software. That is turning. The DVD business has been incredibly strong. Finally, it looks like compact-disc protection is starting to happen. EMI is copy-protecting all CDs outside the U.S. and Europe. This could be a $100 million opportunity for Macrovision in two or three years.

Q: What do earnings look like?
A: They earned 70 cents a share last year. They're going to earn 75 cents this year and could earn 85 to 90 cents next year. The stock sells for $21 and change. The company has $4.70 a share in cash. The whole area of media content used over the Internet is where you've got to focus for the next year or two. Apple's got a lot to do but they're on the right track. I'm not recommending the stock, but what they did with iPod is terrific.

Q: You've been a fan of disk-drive stocks for more than a year. Congrats! They're finally working. Does the rally continue?
A: They will continue to work. Sony announced the upgrade for PlayStation 2 and talked about an embedded 120-gigabyte drive. The current PlayStation has eight gigs. Video-on-demand is happening faster than I thought. The amount of memory going into new electronic devices is amazing. I said in an earlier interview that the disk-drive makers would prosper first, followed by component suppliers like Hutchinson Technology.

Q: Thanks, Art.

Felix Zulauf

Barron's: Felix, you were right on target in January, when you predicted big trading moves in the U.S. and Europe and slow economic growth. Want to test your luck for the next six months?
Zulauf: I'll take a chance. Something very important changed in March. At the market lows, everyone who had to sell, was forced to sell or wanted to sell really sold. The liquidation pressure has disappeared. Until a few days or weeks ago, the rally was much more about selling pressure than real buying pressure. More recently, the technicalities of options expiration have come into play. [Friday marked the"quadruple witching" expiration of stock options, index options, futures and single-stock futures.] Record amounts of call options were sold short or written against long positions. As investors lost their bets, they had to chase the market up. There have also been huge liquidations of equities by European insurance companies, and those that kept some equity positions hedged near the lows. Usually, when they sell futures against positions, they don't roll them over at expiration. They cover their shorts, which is also happening here.

Q: So the market's rallying for technical reasons?
A: Yes, a lot of short-covering and the unwinding of hedges. But the fundamentals are also changing. The Federal Reserve has announced to the world that it doesn't want to repeat Japan's mistake. That's why it has continued to push real rates down. Interest rates are in negative territory, and we'll get another rate cut soon. The Fed wants to err on the expansive side. They don't care if rates go to zero. They want to recreate inflation, and in doing that they have to reignite the asset bubble.

Q: It's one big manipulation.
A: Absolutely. I am not suggesting it will have a happy ending, but there is a sweet period in between. Eventually the Fed will be successful, but it will be very bumpy progress because we never had a sustained economic recovery. The corporate sector in the U.S. is running a financial deficit of almost $100 billion. That means cash flow doesn't cover investments and dividend payments. It also means the corporate sector has been too slow in cutting costs. That's why the employment situation won't improve soon. And there's no pent-up demand at the consumer level. To overcome those shortcomings the authorities have put a big increase in government spending, and tax cuts, into the equation. Consequently, next year the economy should do better. What's important here is China.

Q: How so?
A: To get inflation up, we need to see rising prices in China. China's consumer- price index is just about at the same level it was five years ago. PPI [the producer- price index] also is virtually unchanged over five years, though it's now up 7% year over year. If Chinese prices continue to rise, that will feed into U.S. import prices and create a better pricing environment for the corporate sector overall. That is good news for all the world, including Europe.

Q: Where is the unhappy ending?
A: As for the stock market, the best part of the rally is over. It is not a straight line into next year, because there could be some disappointments in the fourth quarter. The unhappy part concerns bonds, which are beginning to top all over the world. I think the bond market will sell off hard over the next 12 months, which could hit the stock market also. Therefore, we have a rally, a setback, and probably another rally from the fall low into the first half of next year.

Q: Are you shorting Treasury bonds?
A: I have shorted some bonds. But the big trade here is shorting the JGB [Japanese government bond]. This is the top of the Japanese bond market. It is the sell of a generation. Short JGBs, buy the Nikkei. The Japanese market is underrated. There are important changes going on in Japan. The corporate sector enjoys a financial surplus. Japanese corporations have much stronger balance sheets today than the U.S. or Europe. Twenty years ago it was just the reverse. The recent decision by the Bank of Japan to buy corporate bonds and asset-backed securities is also great news. They are pushing liquidity into the corporate sector. Again, this is very bad for JGBs. This morning the 10-year was yielding 0.43%. I think we have a relatively straight move to 2%. [Indeed, the trade already has paid off. Ten-year bonds plunged late last week to their lowest level in months, pushing yields up to 0.73% in Thursday's session.] The Nikkei fell 80% over 13 years. In April it was around 7600. Now it's up to 9000. The next move could lead us quickly to 12,000. I see a lot of great news for the world. It's been rare in recent years that I had something bullish to mention.

Q: Really?
A: Strategically one should be long stocks and short bonds. But this is a trading environment. Looking at our January recommendations, we covered our short in Porsche at a nice profit. We covered Starbucks with a small loss, but I'm willing to short it again. High P/E stocks are not the place to be. Our biggest positions are still in finance, banks, some industrial stocks and high-yielding issues in the energy sector. Eni in Italy and Total in France are some names. I still like gold because it's about the only long-term investment theme that seems to be sustainable. And I still like the three names I mentioned in January -- Gold Fields, Newmont Mining and Meridian Gold.

Q: That's encouraging, Felix. You haven't changed completely. Thanks.

Mario Gabelli

Barron's: What say you, Mario?
Gabelli: At the start of the year I said the president will do all in his power to get re-elected. That will result in a very robust market and economy in the spring of 2004, if not earlier. The economic package put in place only needs one more element -- oil prices back in the high $20s, from today's $30 a barrel. I would get more optimistic with oil at $24-$26 -- for the right reasons, that is. Once that happens, a few other things will fall into place. The U.S. is playing the dollar, which is sending a message to Japan and Europe to reflate, as well. Earnings should do extraordinarily well, given operating leverage. With the weaker dollar, reported earnings for S&P companies with a large Europe bias will do particularly well. So the market does OK between now and the end of the year. It's got room for a little more upside. Then, the corporate Cupid is coming back, as we've seen with Oracle's hostile bid for PeopleSoft, and General Dynamics' all-cash offer for Veridien. That's very good for focused investors.

Q: Love is in the air. Do you expect an outbreak of romance in the media sector, now that the government plans to lift ownership restrictions?
A: Take that, plus low interest rates, the absence of amortization of goodwill and the economy picking up in '04, and these stocks will be vibrant. Next year will be particularly good for companies that have stations in major markets. Tribune would like to buy some of Granite Broadcasting's properties. I think Young Broadcasting, in San Francisco, can cut a deal with NBC to sell its onetime-NBC-affiliate, KRON, to the network. I understand several buyers are looking at this property. Young paid $700 million and change. If they get back $400 million to $500 million, take the tax loss, buy back some stock and pay down some debt, the stock will double from where it is today. Young still needs to demonstrate shareholder sensitivity. Insiders are still selling stock.

Q: Well, it has more than doubled in recent months.
A: I don't know why they're selling. But I do know that we've bought stocks where insiders were selling and we made money. In any event, in the newspaper area, Pulitzer is extraordinarily well run, with good cash flow. There are 21.4 million shares outstanding -- 9.6 million A shares, 11.8 million B shares. The stock is $50, with a $1 billion market cap. Debt and cash are about equal by the time the year ends. Earnings for 2003 will be around $2 a share, and that bounces up to $2.95 in '04, driven by the St. Louis economy, growth in Tucson and lower interest expense. The company is worth $70 a share next year. Bob Woodworth, the CEO, is doing a great job. There will be an opportunity to partner with someone if they want. Now, for some other companies. I am not recommending them, but I want to make some observations.

Q: Observe away.
A: E.W. Scripps has a wonderful array of properties. Walt Disney is probably going to come into the market to buy. The biggest buyer out there is Tribune at the moment, and they will focus on WB affiliates. But that doesn't mean it is the only thing around. In January I recommended Liberty, which still has lots of cash and good cash flow. They need to buy back stock. The media companies are more influenced by the growth of advertising than regulatory changes. Vivendi is not driven by FCC [Federal Communications Commission] rules.
In addition to structural changes in TV and radio, regulators may change some of the Public Utility Holding Company Act rules that limit money managers from owning more than 10% of a utility stock. Along these lines you'll see deals in utilities. Enel, the giant Italian utility, has said it is looking to buy companies in the U.S. Then, we could get tort reform. People are also talking about the four Ds: deflation, the dollar, dividends and deals, which we've just discussed. They're unfolding in software. You're starting to see another round of mergers in banking. There will be selective industrial deals. Even utilities will see some mergers.

Q: Let's talk about your current stock picks.
A: I talked about aging in the January Roundtable, specifically the aging population of cars. Now I'll get to people. Currently, approximately 13% of the population is over 65. Twenty years from now it will be closer to 20%. As people get older, they're keeping their natural teeth longer. As a result, there is more money spent per tooth. We're talking six billion people, with 32 teeth per person. Ultimately that's almost 200 billion teeth. Bite into that.

Q: We're chewing on it.
A: On the flip side, there is a shortage of dentists and orthodontists. There are several public companies we follow in the business. I just started buying Young Innovations. It sells for $28 a share. There are nine million shares outstanding, and the company has about $75 million in revenues. Young will earn about $1.60 a share next year, up from about $1.35 this year. The company makes consumables, such as products for infection-control. It can grow about 15% a year. My second pick is Sybron Dental Specialties, with about $500 million of revenues. It will earn about $1.50 next year, and there are 38 million shares outstanding. The company has $300 million of debt. All the dental stocks are very cheap. We are also buying Patterson Dental, Henry Schein and Dentsply International.

Q: What else appeals to you, Mario?
A: I last recommended Cablevision Systems in June 2002. Then they were hit by the perfect storm. After Enron, nobody wanted companies with leverage. Adelphia's fraud was the death blow. But the stock is $21 today, up from the single digits. A year from now AOL Time Warner either will have spun out its cable business or merged with Cablevision or combined their New York cable business with Cablevision. Cablevision is spinning out its satellite business. And it still has wonderful assets that Viacom would love to buy: American Movie Classics and Women's Entertainment.

Q: But these properties aren't for sale.
A: I think they are. In addition, I think they will spin off Madison Square Garden as well. The stock could go to 35-40 between now and the end of 2004.

Q: What is your take on AOL Time Warner?
A: Time Warner is a terrific cash generator. The publishing business, the cable business, the movie and entertainment business are all doing well. The music business is suffering from cyber piracy, but it's becoming a smaller portion of cash flow. [CEO Richard] Parsons is trying to get back to basics. He has reduced the debt of the traditional Time Warner business, ex cable, to about $18 billion. Plus, you get AOL thrown in for free. I'm not smart enough to figure out how AOL can succeed, but there is enough value in the traditional Time Warner business to make it a worthwhile buy.

Q: So, you've been buying?
A: Yes. I think Parsons is going to pull it off.

Q: Thanks, Mario.

Barton Biggs

Barron's: Is this rally for real, Barton?

Biggs: The U.S. economy is going to be considerably stronger in the second half and into next year than the consensus now believes. Real growth is going to be close to 5% for two or three quarters. When you include currency translations, revenue growth for U.S. companies will be a lot higher than analysts are forecasting, and earnings forecasts are too low. Much of the cost-cutting has occurred. There is a chance the S&P 500 could move up 50% off its March bottom.
But it doesn't mean the beginning of a new bull market, or that we're going to new highs. It is perfectly consistent with market history that after the bursting of a bubble and a major decline, there are a couple of 50% rallies. We're in a broad trading range bounded by 1150 or so on the upside for the S&P, and around 750 on the downside.

Q: What do you see for the rest of the world?
A: The U.S. is still the engine. Elsewhere, economic fundamentals are not as strong, but valuations and expectations are a lot lower. I think Japan and Asia and the emerging markets in general are going to do even better than the U.S. In terms of asset classes, drug stocks around the world, but particularly in the U.S. and to a lesser extent in Europe, have been beaten up too badly. They are not going to have double-digit growth in the future, but nor is growth going to be 4% or 5%. The big drug companies, which are selling at very small premiums to the market as a whole, are extremely attractive. They are going to grow 8% to 9% a year, on average. And they are both defensive and aggressive at this moment.

Q: They're defending themselves, anyway, from encroaching regulation.
A: They're going to have to deal with regulatory concerns. But the stocks are already discounting this. Valuations suggest there will be very tough price controls and that the industry's long-term secular growth rate will be only 5%. Growth will be better than that, however. I don't think politicians are going to kill the golden goose that produced all this medical progress over the past 50 years.

Q: Without it, there would be fewer politicians.
A: Oil and gas exploration is another appealing area, with an emphasis on natural gas, oil-service companies and drillers. The surprise has been, and will continue to be, that oil is not going to $15 or $18 a barrel as many thought it would in the aftermath of the Iraq war. The surprise is that it will stay in the $30-to-$35 range, which creates an extremely attractive environment for the drillers and service companies. Natural gas is the fuel of choice in the U.S., and companies that have substantial natural-gas reserves and the capability for finding more are attractive investments. Burlington Resources, Anadarko Petroleum and Apache are a few. I also like Baker Hughes.

Q: Gas prices are bound to fall from current levels, though. What happens to these stocks then?
A: Gas prices certainly will come down because the current supply-demand situation is unique. But the stocks in effect are saying that prices will fall to $3.50 per thousand cubic feet. With oil at $30 to $35, the natural-gas price is going to be more like $4.50 to $5 per mcf, not the current $6. And $4.50 to $5 is a very attractive price for these companies.

Q: Let's circle back to Japan.
A: Both Japan and Germany are the two big-country markets that everyone throws up their hands about. But both are very attractive. Germany is attractive because the European Central Bank is going to continue to ease. And the restrictive labor and union practices that have crippled Germany will begin to change. Germany is going to be the big beneficiary of a secular recovery in Europe, which will happen next year. The market is very cheap, and at its lows was down percentagewise almost as much as Japan. Japan is a little different. Restructuring is working, and earnings are going up even in the face of deflation and declining revenues. Eventually both markets are also going to see a substantial increase in dividend payout ratios. Dividends will go up a lot faster than earnings.

Q: Are you a Japanese-bond bear, like Felix?
A: We have a short position in Treasuries and a short position in the 10-year JGB. Like everyone else, I think there is a bond bubble. So many people have been burned selling short JGBs and Treasuries that they have given up. So now, perhaps, it's our turn to get singed. By the same token, the German bund looks relatively attractive. We would be long bunds, short Treasuries.
In general, I feel pretty good about the markets here. I just went to a Morgan Stanley conference in France with 60 clients, about two-thirds big European institutions and one-third European hedge funds. The people there are still very cautious and underinvested in equities, but feeling the pressure with markets going up. We've had a tradition -- we call it the Curse of Cap d'Antibes. The curse is that the consensus of these very, very smart people almost invariably is wrong. At the end of the conference, participants were asked to name the best asset class over the next 12 months. Only one out of 58 or so thought the Nasdaq would be the best performer, and only two thought the S&P would be.

Q: In that case, we hope you rushed home to buy the Nasdaq.
A: It suggests to me there is a bearish worldwide consensus about the U.S. Yet the U.S. is the market that has led this rally and the linchpin everyone looks to. The curse could be wrong this year, but maybe the surprise will be that technology, like the Nifty Fifty in 1975, is going to rally much further than people think.

Q: What did the crowd love?
A: There wasn't a broad consensus. There was interest in emerging markets and Japan, but no strong consensus on the love side. Everyone believes, as do I, we are in a broad trading range for the indefinite future. Somehow, that probably has to be wrong.
Looking elsewhere, retail stocks in the U.S. probably are pretty good shorts, particularly Wal-Mart. That's a bet against the consumer and a bet on valuation and size. Also, the REITs [real-estate investment trusts] have had a hell of a run over the past three-four years, and the fundamentals of real estate in the U.S. are deteriorating. It's only the dividends that are holding them up. The REITs could be a surprising short in the months to come.

Q: Thank you, Barton.

Abby Joseph Cohen

Barron's: Is this exuberance rational, Abby?

Cohen: We've had a rally on the order of 20%. In some ways this fits the classic pattern of recovery from a crisis. There is often a sigh of relief when it ends and share prices move up 10%, 15%, 20%. In today's parlance that represents increased risk tolerance. At the start of the year, with the S&P 500 trading near 800, the risk premium built into shares prices was extreme. Investors were pricing in the possibility of something ugly. Since then there has not been much change in actual forecasts for profits or GDP, but there is greater confidence in these forecasts, and less risk aversion.

Q: What happens next?
A: The market looks like a staircase. Maybe it will be stuck on this stair for a period of time until fundamentals start to play themselves out. Investors want to know what corporate-profit growth will be. I think the news will be OK. In the first quarter, companies on average did not disappoint. In the second quarter, profits will grow in the high single digits. Our economics team is expecting GDP growth of about 3% in the second half of the year. The key, however, is long-term sustainability. The labor market has been disappointing, but anecdotally things are picking up in individual industries. Not only are profits and revenues better, but orders are improving in some cases.

Q: Which industries are those?
A: There has been some improvement in technology and capital goods, and consumer areas. In January we talked about a rotation in consumer spending -- at some point spending on new homes and autos would decelerate, and consumers would start to spend again on other discretionary items. We thought spending on travel, entertainment, broadcasting media and some forms of retailing would start to turn after a military engagement. They are slowly coming back. On average, household income has been growing in the U.S.

Q: What are your market targets for this year?
A: We haven't changed them. Fair value for the S&P 500 on a 12-month forward basis is 1150. For the Dow Jones Industrial Average it's 10,800. When the market was at 780, 1150 was quite aggressive, but we are more than halfway there. That target would represent an increase of about 15% from today's levels.

Q: How do you get there from here?
A: It will require signs that economic growth is accelerating. Second-half GDP will be up at least 3%, and corporate profits will start to look better. On the latter score, 2002 marked the worst year ever in terms of quality of earnings. S&P 500 write-offs were larger than reported earnings. And most of those write-offs were concentrated in a small number of troubled industries. Forty-five percent of the year's goodwill impairment was announced by AOL Time Warner alone. Last year was the big clean-up. This year's numbers are transparent.

Q: What do you expect the S&P 500 to earn this year?
A: On an operating-earnings basis we're looking for $46 this year and $51 in 2004. We are below Wall Street's consensus estimate, but the gap between our numbers and others' has been narrowing. Of course, we could all be wrong together, but it's less likely.
In April we made several changes to our model portfolios. We reduced our fixed-income exposure to 20% because we want minimal exposure to intermediate and long-duration Treasuries. Normally, we recommend about a 30% weighting in fixed income. We're overweight in equities, at 75%. Regarding sectors, we pared our energy overweight to market weight. We had bumped it up at the end of September '01 as a geopolitical hedge. We also allowed our weightings in high-beta sectors like technology to come down a little. We think Microsoft is an interesting, high-quality way to participate in tech. The stock sells for 24 times expected earnings, and earnings long-term are growing by 10%.

Q: What is your view on bank stocks and other financials?
A: We've stayed somewhat overweight, picking stocks that will get a lift from improved economic activity. We like Bank of America, which has done a very good job of managing its loan portfolios and eschewing additional financial services. Long-term earnings growth is about 10% and the stock has a 3% yield. We're overweight in consumer discretionary and industrial groups -- again, not autos and housing. Instead, we focus on economy-sensitive categories such as media, entertainment, airlines and a few others. We like Viacom and Atlantic Coast Airlines, which is benefiting from a pick-up in domestic air travel. Our analyst sees long-term earnings growth of about 15%. The stock trades at 14 times this year's earnings and for less than nine times next year's expected profits.

Q: Sounds good. Thanks, Abby.

Meryl Witmer

Barron's: What's up, Meryl?

Witmer: Lots. I do not see many inexpensive stocks around. I'm neutral to negative about the rest of the year. The market will be flat to down 5% from here, unless, for instance, the problems at Freddie Mac mushroom into something bigger. [The mortgage-finance giant recently fired several executives and is planning an earnings restatement.] The government either should be paid a subsidy to guarantee Fannie Mae's and Freddie Mac's debt, or demand that Fannie and Freddie raise their capital ratios by three to four times current ratios. The companies' shareholders should not benefit at taxpayers' expense.

Q: In some quarters that's an increasingly popular view.
A: In general, if mortgage interest rates go up, that could put a chill on the economy. That's one reason I'm a little more cautious now. Also, many stocks I own or have owned have reached fair value.

Q: Has Dade Behring? The stock is up 42%, to 24, since you recommended in January.
A: Dade has a great business model. It sells machines and gets recurring revenues by selling supplies and services for those machines. It continues to have more machine placements. The company has exceeded my earnings outlook by about a year. We're still holding the stock, and we're still excited about it. ITG, on the other hand, hasn't quite worked out. [The stock has fallen 19% since Jan. 6.] There are rumors Instinet will enter the same market, which would be a negative. I have less confidence in the story now.

Q: In other words, you've sold.
A: Yes. I have three picks and one pan now. Imagistics is the cheapest stock in our portfolio. It was spun out of Pitney Bowes at the end of 2001. It is a direct-sales service and marketing organization that sells and leases copiers, faxes and multifunction machines to corporations and government entities in the U.S. and the U.K. The copier side of the business is growing about 8% a year, while the fax side is declining 5% to 10%. Core revenues are starting to grow and margins should start to expand. IGI likes to private-label best-in-class machines. It doesn't require a lot of capital spending because the company is not building the machines.

Q: How 'bout some earnings?
A: IGI's current '03 guidance is about $1.10 a share. On the face of it, the stock doesn't seem cheap at $24. But depreciation costs are way out of whack, to the tune of about $1.60 a share, because the cost of the machines has come down. Other one-time investments are penalizing reported earnings by more than 50 cents a share. Add it all up, and the company should generate more than $3.20 a share in free cash in about a year. The balance sheet is clean. Management is looking to do a bolt-on acquisition that could bump up the growth rate. IGI has excellent financial management. It has repurchased about 13% of its outstanding shares since the spinoff. At a 12-to-15 multiple on after-tax free cash flow, my target is $38 to $48 a share.

Q: What else do you like?
A: AT&T Canada trades over the counter and in Toronto. It recently emerged from bankruptcy as a debt-free company. It's the largest competitive local-exchange carrier, or CLEC, in Canada and provides voice, data and Internet and IT services to businesses based in Canada. The company sought bankruptcy protection because it had C$4.5 billion of debt, the legacy of building out a broadband fiber-optic network across Canada. The current market capitalization is $600 million -- 20 million shares trading about $30 apiece. The company has $120 million in cash. It has brought in some good operating guys from Bell Canada and is making money.

Q: How much money?
A: Annualizing first-quarter Ebitda, AT&T Canada is making $180 million a year. Maintenance capital spending is about $60 million. And the company has such a large net-operating-loss [NOL] carry-forward -- $1.4 billion -- that it will not be a taxpayer for the foreseeable future. So we have a company generating free cash flow of $100 million to $120 million, or $5 to $6 a share. Also, Canadian tax rules on NOLs are not as limiting as the rules in the U.S, so an acquiring company in a related business could utilize those NOLs immediately if it had the requisite taxable income. The NOLs alone are worth the share price to an acquirer. The regulatory environment in Canada, which heretofore was more incumbent-leaning, is now undergoing change in favor of AT&T Canada.

Q: That's attractive. What else have you got?
A: We're long Hasbro, short Mattel. For the first time in years, Hasbro is competing aggressively and intelligently. The company has some terrific new products, including Beyblades, a fighting-top toy for boys, and the 20th anniversary edition of Trivial Pursuit. Hasbro is also revitalizing Playskool. The company has cleaned up its balance sheet and is a cash-generating machine. It should report about a dollar a share in earnings this year, and has 75 cents in excess depreciation and amortization. So it's trading at less than 10 times after-tax free cash flow.
The pan side of the trade is a bit more interesting now. Let me stress that Mattel is a wonderfully managed company with some terrific brands. But it is getting attacked from all sides. Barbie for the first time in memory has some worthy competition, from a doll brand called Bratz. The sea change here is that nine-year-olds are now embarrassed to play with Barbie. Only Bratz are cool. On the boys' side, where Mattel has Hot Wheels, competition is fierce for dollars from Yu-gi-oh and Transformers. Fisher Price faces renewed competition from Play-skool. The problem is the toy business is a low-growth, zero-sum game. When one guy's line is hot, the other's is cold. Valuation also is a problem. Mattel earned about $1.10 a share last year. The stock is $20.80, and the Street is looking for earnings of $1.25 to $1.35 this year. There is some chance Mattel pulls a rabbit out of a hat and meets expectations, but it is more likely earnings per share are flat. My target price is $12 or $13.

Q: And your target for Hasbro?
A: Let's say $23. Hasbro deserves a 13 multiple on free cash flow of $1.75, as it has better growth prospects going forward. I was long a lot more Hasbro than I was short Mattel. But Hasbro has moved up lately, and I have piled on the Mattel short.

Q: That's no kid's play. Good luck, Meryl.

John Neff

Barron's: Still bullish, John?
Neff: In January I said the market might be up 10% for the year. Well, the Dow is up about 10%, the S&P a bit more. At this point, maybe it's a little too happy. The economy is plugging along and will get better. It's not going to be a rip-roaring recovery, but as we get into next year, we'll be talking about 3% or 4% GDP growth. There are a lot of positives out there, including the government's tax cuts. And I still maintain the consumer is in pretty good shape. I'm not smart enough to figure out the Freddie Mac situation and its influence on mortgage credit, but people make their mortgage payments and life goes on.

Q: Speaking of mortgages, your homebuilder stocks -- KB Home and D.R. Horton -- have been huge winners. Are you still holding, or folding?
A: I had built very big positions, which became even more enormous, with the stocks up 50%-60% since year end. I am not without a"prudent man" streak, and I am taking some money off the table. I've never been uncomfortable with selling into strength and buying on weakness. I didn't think mortgage rates would go down to 5.25%, however. In the near term, the home builders are going to have a hard time keeping up with demand.

Q: What did you do with your profits?
A: It is mostly accumulating in cash. I have continued to build a position in Valero Energy. To my mind it's the class act in refining, and it's got a market capitalization of only $4 billion. Valero is about 60% complex, which means it can refine so-called sour crudes, which it gets for a nice discount. The company is spreading its tentacles, and just bought a refinery in Louisiana that increased its throughput by about 10%. There hasn't been a greenfield refinery built in this country in probably 25 years. No one wants it in his backyard. Overall, industry capacity is declining slightly every year, while demand is moving up about 2% yearly. Most recently, capacity utilization was 96%-97%, about as tight as you can go. Also, inventories are low. And it's not only gasoline but heating oil that puts you in a pretty position.

Q: How about some numbers?
A: It's cheapo. It's trading for about six times this year's earnings and four times cash flow. It is using that cash to buy up other refiners, and for needed expenditures of its own. Refining margins have been lackluster this quarter after a strong February and March. But I think Valero will earn $1.50 in the quarter and $6.50 for the year. Maybe it will trade up to eight to 10 times earnings. Book value is around the current market price, actually a little bit above. And it is good, honest book, even including intangibles. The stock is selling for $38 and book value at the end of the year will be about $46 per share.

Q: Where else do you see value?
A: Washington Mutual has had a bit of a move since year end. But at $43 a share -- I'm using earnings of $4.40 this year, $4.80 next year -- it's selling for eight-nine times earnings. They've got a 2.8% yield, and they increase the dividend every quarter. They get about a 19% return on equity and 14% retention on equity. You can finance a lot of the dividend with that. Washington Mutual has good capital ratios and good loss ratios. It has been a prudent adjustable-rate lender.

Q: How much of the good news is in the stock?
A: At nine times earnings, I'd say very little. It's an 11% grower with a 2.8% yield, so that's a 13.8% total return. That's almost 50% greater than my expectation for the S&P, at half the market's multiple. And when the market is not too enlightened, they buy stock in. This is a user-friendly operation, with a concierge at the door of each branch. The company is opening new branches across the country, breaking into new markets as it goes, with a new branch concept. It is not only the biggest thrift but the biggest servicer of mortgages.


John Neff


Q: What happens to WaMu when interest rates start to rise?
A: You could see some pressure on net interest margins. But as long as the portfolio is virtually 100% adjustable-rate, they're in good shape.

Q: Speaking of good shape, how about an update on Bally Total Fitness, which you recommended in January?
A: That's my third pick. It's laboring right now because of the economy and the competition. Earnings this year will be a depressed $1.30 a share, but it's selling for six times those earnings. I've got $1.50-plus for next year. The board has three new members from the investment community, including John Rogers of Ariel Capital. They're much more shareholder-conscious.
Bally has pulled back on its expansion quite a bit and will be cash-flow positive this year. Even in normal times, it takes three to four years to bring a new center up to break-even. They're trying to intrigue people with different deals. They've got a nutritional-products line. Nutritional products and personal training is growing about 25% a year, or more. I think $1.50 will be on the low side next year. Plus, there's a big short position, about 35% of the float. They could get squeezed. The company's market cap is $270 million.

Q: Is your target still $20?
A: The stock is trading for $8.70 a share. It got up to $9 midweek after the company announced a debt offering. It probably won't get to $20 until the company earns $1.60-$1.70 a share in 2004. This is gamier than my other picks, as it is highly leveraged. But if you're $20 million-$40 million cash-flow positive this year, and more next year, you start to gnaw away at that debt.

Q: Fair enough. Thanks, John.

Archie MacAllaster

Barron's: What's new, Archie?

MacAllaster: It's the same old thing with me. I concentrate on individual companies and stocks, and I think lots of things are pretty reasonable in this market. As for the market in general, as long as interest rates are very low and it's an election year, the market's probably all right. But I am nervous about it because it has had a hell of a move. All kinds of things could really jolt this market. But I put on my blinders and look for stocks.

Q: You found quite a speculative duo in January -- Williams Cos. and Nash Finch. Both proved terrific recommendations. Care to update them?
A: Williams moved from under $3 to about $8.50. If you get a double or triple in six months, you're on your own. However, I would point out that Williams is ahead of the restructuring program that I foresaw. The company has raised some capital. It has been upgraded by Moody's and Standard & Poor's. By the middle of next year, a year ahead of schedule, debt will be down some 40% from what it was. The company could be earning at a rate of as much as $1 a share, and investors probably could look forward to some hefty dividend increases. Williams pays only a penny a quarter.

Q: So you're hanging on.
A: I haven't sold a single share. But then, I haven't owned it a full year and that makes a big difference [from a tax perspective]. When I've held it a year I'll think about it, but the stock is worth more. At 8½ it's a good value.

Q: Nash Finch seems to be doing much better, too. The stock is up 68% since the Jan. 6 Roundtable.
A: I still like Nash Finch very much. It's one of my current picks. The company is up-to-date on its accounting. The stock is $13, up from $7 or so, where I recommended it in January. It's got about seven points to go. Book value is between $18 and $19. Earning power this year is $2.35 to $2.50 a share. I don't see a lot of growth, or maybe any growth, but Nash Finch still has $4 billion in sales. Maybe it's a $20 stock. It's a buy.

Q: Let's hear some new names.
A: Though UnumProvident is so much larger than Nash Finch, the figures are similar. The stock is $13 or so, down from 25 and a fraction in the past 12 months. The stock was below $6 briefly. The company has raised a billion dollars in new capital, and they raised it easily. UnumProvident is the largest company in the workmen's disability business, with over $40 billion of assets. It was downgraded by the rating agencies, and it probably will be upgraded again as a result of the new capital. The company has not made less than $2 a share in several years. It made $2.50 last year, but will make $1.70, $1.80 this year. But, mind you, the stock is at $13. They fired the chief executive officer, and they're looking of a new one. If they find the right person, this thing will be on the go again. The company has cut its dividend from 59 cents, but still pays 30 cents a share. And it yields about 2.50%, which isn't bad.


Archie MacAllaster


Q: Certainly not in this market.
A: Once insurance companies get their credit ratings knocked down, people don't like to deal with them. Investors were so worried this one would go out of business that they murdered the stock. But Provident did an underwriting very easily. The company now has 75% equity to debt. It has a book value of about $22.50.

Q: What is your outlook for bank stocks in general?
A: I like the banks. They pay nice dividends, which could support the stocks in the next few years. If things get tough they will hold their own. They're a good place to be, and I own a lot of them, too.

Q: Thanks for the update.

Scott Black

Barron's: What do you make of this market, Scott?
Black: If we're lucky, the Standard & Poor's 500 will earn $43 to $44 this year. That means the market is trading for 22.5 times earnings. It's selling for more than three times book value and yields 1.5%. By almost any metric, that's expensive. Sure, we have the lowest nominal interest rates since JFK was president. But that still doesn't justify current P/Es. And there is outright speculation in the tech sector. Semiconductor-equipment companies, which have negative earnings, have doubled or tripled off the bottom. Evidently people didn't learn the lesson of 1999-2000. It's OK to buy companies with no prospects and no return on capital so long as you believe in the"greater fool" theory. But that doesn't appeal to us.


Scott Black


Q: You're no fool.
A: Even though corporate earnings were up in the first quarter, the gains were driven by rationalized costs, layoffs and improvements in SG&A [selling, general and administrative expenses]. They weren't driven by top-line growth. The economy is weak. I predict we'll get another tax cut next spring, ahead of the presidential election. It's going to be needed to jump-start the economy. It probably will be aimed at the middle class. The economy is not going to fall into recession because there is so much stimulus. But we're talking slow growth.

Q: Nevertheless, you're still buying stocks.
A: Mostly small ones. We are market-agnostic. We buy companies with high returns on equity, generating cash. They trade for low P/Es and low price-to-book ratios. OMI Corp., an oil-tanker company, is one. It is run from Stamford, Conn., but domiciled for tax purposes in the Marshall Islands. The stock trades for about $5.90 a share. Tangible book value is $6.02. The company has 77 million shares outstanding, and a market value of $455 million. We bought the stock around $4.70-$4.80 a share, and we own about 870,000 shares.
OMI earned $1.21 a share at its peak, in 2001. Last year the company earned 22 cents. But in this year's first quarter they shot the lights out with revenue of $84 million, versus $44 million in 2002. They earned $25.7 million, or 33 cents a share, compared with $377,000, or a penny the year before. The company is expected to earn close to 24 cents in the second quarter, and is well on its way to earning 90 cents to a dollar for the full year.

Q: What is driving this growth?
A: OMI has 36 boats. Day rates jumped from $14,821 a year ago to $45,222 in the first quarter. Worldwide demand is going up about 2% a year, and there are not many additions to the fleet. The business is nicely divided between timed charters, which carry so-called clean products like refined gasoline and jet fuel, and Suezmax crude-oil tankers. There's good operating leverage here. The overall age of the fleet is 6.2 years. The Suezmax boats are only 2.8 years old. About 80% of the fleet is double-hulled, which is terrific. The gross value of the fleet is $1.275 billion, less net debt of $489 million. Thus, net breakup value is $786 million, or $10.20 a share.
We're sticklers about free cash, which should come to $58 million-$59 million this year. OMI will earn about $77 million in income. Add $48 million in depreciation and amortization, and you have $125 million of sources of cash. Back out $66 million of capital expenditures, and they don't pay tax. The balance sheet is half debt, half equity, which they can handle.

Q: Where do you find small stuff like this?
A: In the Yellow Pages, under"Cheap." Polyair Inter Pack, based in Toronto, is another cheap stock. It trades on the American Stock Exchange for $8.40 a share. There are 6.36 million fully diluted shares outstanding, and a $53 million market capitalization. In fiscal 2002, ended October, Polyair had revenues of $119.5 million. The company earned $4.5 million, or 71 cents a share, fully taxed, but generated $12 million in free cash. That's a heck of a good conversion ratio of net income into free cash flow. Over time, revenues have grown about 14.8% a year. Operating and net income grew 31% over the past five years, though that's on a tiny base.

Q: What does the company do?
A: They make protective packaging such as bubble pack and foam pillars. They also own a pool-products outfit, which makes pool covers, liners and fencing, and floatation cushions. Polyair just bought Jacuzzi's pool-products business for $41.2 million. The business last year had revenues of $55 million.
Let me walk you through the numbers. Revenues will increase by 5%-6% in fiscal '03. Operating margins will remain at 7.8%, and fully taxed the company will make $4.98 million, or 78 cents a share. They'll have no incremental debt at the end of the fiscal year. If the Jacuzzi business has the same 10% margins as Polyair's pool business, it will add $1.8 million, or 28 cents a share, to after-tax earnings. Building on a total earnings base of 83 cents, the company could earn $1 to $1.10 for the October '04 year. You're looking at a P/E of roughly seven times next year's earnings. Book value is just under $4 a share, so the stock is selling for two times book.

Q: Thank you, Scott.

Oscar Schafer

Barron's: How 'bout this market, Oscar?
Schafer: In the near term it's going to continue to go up, and not necessarily for any great fundamental reasons. In March I first noticed that when companies reported earnings disappointments, their stocks stopped going down. That includes some of our shorts. This may be the start of the revenge of the long-only money managers. Hedge funds were the asset class du jour, and when people throw money at any asset class, whether it's hedge funds or technology, the returns have to go down.
We're seeing a lot of short-covering, too. Another hedge-fund manager did a study showing that since March 10, stocks with short interest of more than eight days' trading volume went up three times as much as stocks with short interest of a day or less. A lot of people invested in hedge funds for protection, and managers felt forced to have short positions. They shorted a lot of the same stocks, are now they're having real problems. There's a chance that hedge funds as an asset class will underperform the averages for the year.


Oscar Schafer


Q: That would be ironic.
A: Well, it wouldn't be surprising. The economy is doing all right. We're not going to have a big boom, but business generally is getting a little better. Some people think the weak dollar will be bad for dollar-based investments, but it helps businesses at the margin.
I have two somewhat speculative stock picks. But both have great potential. The first is Tyco International. Tyco is really two companies, one with sales of nearly $40 billion and 250,000 employees, and another with 100 office people, many of whom were corrupt. The first company is composed of businesses with leading market shares, reasonable returns and fairly autonomous operations. The other company was too smart by half. It is now run by Ed Breen, who came from Motorola and has brought in new high-level management, new directors and new ethics.
Having met with him, I am confident he will deal with his predecessors' legacy problems without too much financial damage. His job was to fix the balance sheet, take costs out, make the company more efficient and use the company's"new" cash flow to begin to take down the corporate debt. In 2005-06, debt will be reduced from 42% of capital to well under 20%, and earnings per share will rise from $1.40-$1.50 this fiscal year to close to $2.50. The stock should more than double from here. The $1 billion or so that the company may have to pay in fines should be considered in light of a company with two billion shares and an enterprise value of more than $60 billion. The companies Tyco bought were so autonomous that they didn't have any efficiencies. There was a huge amount of excess real estate. Breen is going to make this a more efficient company.

Q: Is he going to spin off operations and shrink the company?
A: It's too early to make that judgment. My second pick is Flamel Technologies. It's a drug-delivery company with unique technology. It's based in Lyon, France, but trades mostly in the U.S. via American depositary receipts. It has 16 million shares outstanding -- 20 million, fully diluted -- and trades several hundred thousand shares a day. I just visited the company. It has three Nobel Prize winners on its advisory board.

Q: And we know what that did for Long Term Capital Management.
A: These guys have been very helpful, actually. Flamel just elected three new directors from major pharmaceuticals companies. The company's technology allows small-molecule oral drugs to stay in the body longer, and have more lasting and even effects. One technology is called Micropump. Another is called Medusa, which adds efficiency to injectable proteins and peptides. In addition, Flamel has developed its own human insulin. It's been shown in clinical trials to be equal to or better than Aventis' Lantus, the fastest-growing treatment for diabetes.

Q: Does the company make money?
A: The company made a little money last year and will make a little money this year. Flamel has already announced partnerships with Glaxo SmithKline, Merck and a private French company called Servier. And it has received up-front milestone payments from 10 other companies, as yet undisclosed. The milestone payments from partners more than offset their research and development and overhead costs. But Flamel probably will not have substantial royalties until 2005 or 2006, so it's really a long-term earnings story.
Since January, the stock has more than doubled, but as the story goes, it may be a better buy today than when it's technology was not yet accepted by major pharmaceutical companies. The company has 15 projects, each addressing a more-than-$1 billion market. If only 20% of these projects lead to contacts and royalties in the 5%-to-8% range, in three to five years the company should be able to earn $5 a share on a recurring and growing basis. The stock is at about $12, and could go up a multiple of its current price. By the end of the year the company might have one or two more licensing agreements on the micro-pump and a licensing agreement for human insulin on the Medusa side.

Q: Thanks, Oscar.

Marc Faber

Barron's: How does the world look to you, Marc?
Faber: Over the past six months it has become obvious that the Federal Reserve, the European Central Bank and the Bank of Japan will monetize the system massively in order to keep it going. The rapid expansion in the money supply, and especially in credit as a result of mortgage refinancings, is keeping consumption in the U.S. at elevated levels. But industrial production is flat or declining, even in industries related to housing. In Asia, however, production is rising and investment activity is strong. In the first quarter Chinese exports were up 33%, and foreign direct investment in China was up more than 50% compared with a year ago. The result is a huge trade imbalance.


Marc Faber


Q: What are the implications for investors?
A: The liquidity creation in the U.S. and now Europe and Japan has boosted bond prices and driven a sharp stock-market rally, particularly in the Nasdaq. Stocks are overbought right now, and may correct the strong advance they had in the next couple of months. In the past few weeks Asian equity markets have started to rally, too, especially in Indonesia and Thailand. Now Japan is joining the party. But anyone who buys the S&P 500 around this level might not make any money, or very little money, for the next five years. Reflation by the central banks is not solving any problems, but postponing them. The big issue is the imbalance between consumption in the U.S. and production in Asia.

Q: What role does the dollar's decline play?
A: The dollar's weakness is an added advantage for Asia, because Asian currencies have weakened against the Euro. And now they are incredibly competitive against the euro and Eastern European currencies. Given the weak dollar and the low level of equities, you can find lots of stocks that yield between 4% and 6% in Asia. Money will keep coming to Asia, and the bull market that just began there may have a life of its own.
The prime beneficiary of reflation could be Japan. There is a very good chance the 13-year bear market in Japan has bottomed. Government-bond yields are now below 0.6%. Individuals are underweight equities. At some stage worldwide monetization will begin to have a negative impact on bonds. This is the mirror image of 1981, when the bond market bottomed and rates on long bonds in the U.S. peaked at 15.84%.

Q: Are you shorting the U.S. bond market.
A: Some time this year it will be a short. But I wouldn't buy bonds here. The Japanese bond market is the short of the century.

Q: Well, it's a young century.
A: The Nikkei has a higher yield than the bonds. It's almost a no-brainer to buy Japanese stocks and short Japanese bonds. I would buy the brokers, because if my theory is right, there will be a huge increase in trading volume. Or, you could just buy the Nikkei.
In the U.S. some stocks probably have value. Oil and mining companies, maybe some basic industries have value. But the overall P/E of the U.S. market is still high, with a relatively unexciting economic backdrop. In Asia, alternately, countries like India, Vietnam, China, Thailand and Indonesia easily can grow at 4% to 6% per annum for the next couple of years. In China, if you annualize first-quarter growth, the growth rate is 9.9%. Some would might say the Chinese government cheats, but it doesn't matter whether China is growing at 5% or 8% or 9%.

Q: How do you play China?
A: Through countries that are complementary, such as Australia, New Zealand, Indonesia, Malaysia, Thailand. China will need to import resources -- oil and gas and lumber and meat and wheat and copper and iron ore. I would buy mining companies such as Newmont Mining and BHP Billiton. In Indonesia, buy plantation companies such as London Sumatra. Indonesian bank stocks just started moving up. Pharmaceutical and real-estate companies in Indonesia have done well, and will continue to perform. In Thailand, health-care companies like Bangkok Dusit Medical Services and building-materials companies like Ocean Glass are still attractive. The Philippines has been lagging, but because it frequently moves with Latin American markets, we could see some improvement. We like Ayala Land, Jollibee Foods and ABS-CBN Broadcasting. Given the reflation theme, Hong Kong and Singapore property stocks will perform satisfactorily. In Hong Kong we like stocks such as Swire Pacific and Shangri-La Asia, a hotel operator, and Next Media, a publishing company.

Q: What is the long-term outlook for the U.S.?
A: This monetization experiment on a global scale will temporarily boost economic activity and consumption. It will end in disaster. Eventually interest rates will rise. The 10-year bond easily could yield 6% two to three years from now. That would be a big killer for the housing market. And even if interest rates don't go up, the refinancing boom will taper off anyway. Unlike Japan after 1990, the U.S. does not have a trade and current-account surplus. It has deficits. You can buy stocks today and assume that because of reliquification, the markets will continue to rise and you'll have a trade. But this is a dangerous rally.

Q: Thanks for the warning, Marc.

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• Akt. Barron's Roundtable - m. Zulauf, Faber und Gabby Abby - kingsolomon, 22.06.2003, 09:26