March 1, 2000

 North American stock markets continue to be very volatile but are beginning to show signs of correction. The TSE 300 index at 9223 close to its recent high of 9557 trades at 32.5 times improving earnings to yield 1.16% on dividends. The Dow Jones Industrial Index at 10,039 is off 14.6% from its January 14 high of 11,750 and trades at 21.7 times trailing earnings to yield 1.54%. The S&P 500 index at 1348, January high 1478, trades at a 30.7 p/e to yield 1.25% on cash dividends. The NASDAQ trading at 4578 is close to its high of 4618. However, stock markets continue to be selective awarding new economy industries high multiples and ignoring the old economy ones.

The bond market acted much more stable in February and trende to higher prices and lower yields. US 30-year bonds after having traded as low as a 6.44% yield on Feb 11 rallied to a 6.09 yield on Feb 24 to end up trading at a 6.19% yield on Feb 28. Long Canadas traded all the way up to a 5.72% yield on Feb 24 and ended at a 6.19% yield on Feb 28 compared with 6.17% early in the month. US 2-year bonds on Feb 28 trade at 6.42% compared with 6.58% early in the month and Canada 2-year bonds trade at 5.82 % compared with 5.93% late December. Interest rate futures are trading on the basis that the Federal Reserve Board will increase rates again by a quarter of a point on both of the next two dates of FOMC meetings March 21 and May 16

Commodity prices, as measured by the CRB futures index, stood at 207 on Feb 28 compared with 213 early in the month. Gold corrected to $292 from $310 early in the month, mainly the result of Ashanti Goldfields Co. Ltd.s settlement of its gold margin requirements with its banking copartners. There was a danger that Ashanti would be obliged to purchase gold in open market transactions to cover their hedge. A number of factors appear to be at play. Some gold producers, such as Placer Dome, announced they would curtail selling gold futures. There were also rumors that certain large hedge funds were caught short on both gold as well as long-term bond futures and were being forced to cover up. In any event, it is becoming apparent to many that the price of gold has been kept artificially down, certainly with respect to supply and demand. Oil continues to trend toward higher prices, $30.13 on Feb 28 compared with $28.82 in early February.

The US economy continues to perform very strongly. US Gross Domestic Product for the fourth quarter of 1999 was revised upward to a rise of 6.9% from the initial 5.8% annual rate.

From an inflation-reporting point of view, the month of February produced rather benign results. The US Consumer Price Index in January rose the same amount as in December, a modest 0.2%. The US Producer Price Index for January was unchanged. US retail sales for January rose only 0.3%, being somewhat affected by poor weather. Also, grocery sales were down from December when some stock piling had taken place vis--vis Y2K. The fly in the ointment was when US non-farm payrolls for January were announced having increased by 387,000, way above predictions of a 264,000 increase. February figures will be announced on March 3. And are anticipated as an increase of 201,000 while the unemployment rate is expected to hold at 4.0%.

Notwithstanding the low rates of inflation exhibited by the CPI and PPI figures, Federal Reserve Chairman Alan Greenspan on Feb 17 in addressing Congress said basically that he plans to raise rates until consumer spending and the stock markets cool off.

The current edition of LATEST PICKS will look at several stocks, some overlooked.


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