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Show Saturday, July 1, 2000 Tfce Par Record A-19 Talking Shop Will it be 1994 all over again? by Rick Mastain RECORD GUEST WRITER The big news this week is that the Federal Reserve has decided to stop raising interest rates for the time being. Over the last twelve months the Fed has raised interest rates six times! The last time the Fed so aggressively raised interest rates was in the first part of 1994, when they also raised rates six times. Interestingly, once the Fed stopped raising rates in 1994. the stock market entered an extended bull market. What exactly, then, are the implications of the Fed s decision this week for the common-sense investor? First , it means that in all likelihood likeli-hood interest rates will trend downward down-ward over the rext several months. So. if you invest in bonds, lock in vour returns now - the same goes for CDs. Secondly, the impact should be positive on the stock maiket in general gen-eral - that is, good quality companies should do well in the near term for several reasons. First of all. a declining interest rate environment has historically been a shot in the arm for stixks. Secondly, the Fed wants t3 make sure that the economy is sailing along smoothly as we go into the November elections, and finally, the Fed has indicated that inflation is under control, which is generally positive for stocks. While the stock market in general gener-al should perform well over the next several months, the financial services area should be the stellar performer. This area has been beaten to a pulp over the last year. Stocks like Wells Fargo. Washington Mutual. Fannie Mae and Chase Manhattan have all declined by more than 20 percent during the past twelve months. These are well-run companies and they have continued to increase earnings per share. Similar to 1994. as interest rates J" s-Lr. s-Lr. ..,.-A.'.tUir. -lJuL.i.i.ain...J were rising, the financial service stocks declined while their earnings increased. Yet in 1994, when it became clear that the Fed was finished fin-ished raising rates, this sector took off. Many financial services companies compa-nies saw their shares double anil triple during the following two ears. Of course, history doesn't always repeat itself, but there are enough similarities here to caiM the common-sense investor to sit up and take notice and to senouNly consider adding some financial service companies com-panies to their portfolios. Internet bubble? Last month I nked the general Internet dot com area over the coals pretty well. This is a very nsky area. I pointed out that companies "that lose mi ncy eventually see their share prices decrease". The two moM recent examples of this are two of the "poster children" of e -commerce: Armuon.com and eBay.com. Amazon's share price has declined from 111 in January to the km 30's. Amazon provides a great service - but they lose monev on most transactions and do not have a strategy in place to make a profit. eBay s share price has declined this year from 94 in January to about 50. Their Price Earnings ratio is 1 .247 (this is not a mivpnnt ). Investing in the Internet area, in companies with no earnings, unproven management and new business concepts is a high-risk endeavor. For us skiers, it is like a novice on a double black diamond: proceed at vour i vvn risk! So how can prudent and com-mon-s. nse investors take advantage of the U chnology rev olution? This is a very important concept to understand. under-stand. The stoiv about the technology revolution is iwt the Amazon coins or eBav corns. The story - and the way to invest prudently in this area - is to recognize recog-nize that many "old economy" companies com-panies have invested heavily in technology. tech-nology. They are aggressiv ely investing invest-ing in technology to make their businesses busi-nesses more competitive and efficient. effi-cient. A simple example is Ford Motor. Ford is mov ing towaid doing all of their procurement online. This will eliminate inventory control Issues and lower their cost of production which in turn make this company much more profitable. Many companies are consolidating consolidat-ing procurement within all of their subsidiaries, giving them added purchasing pur-chasing power and bringing the sav ings right to the bottom line. There are many other examples of using technology in addition to procurement. The key point is that the major long-term beneficiaries of technological breakthroughs have been and will be those companies building infrastructure to increase their productivity and profitability. Investing in companies with good e irnings. sound products and gxxl management who are also taking advantage of technology to improve productivity will be the long-term winners. Investing in these types of companies will add to vour nest egg and let you sleep well at night. RkharJ Mastain, Park City, if j managing director and principal of Delia Capital Management, an employee-owned investment advisory firm based in Sew York On: Vie company manages slightly over $1 billion for pension and pro fit-sruinng plans, endowments and indivi hulls. Mastain has over 19 years of investment management experience, beginning with Scudder Stevens and Clark in Los Angeles in sVC. He htis held positions such as vice president porrfi 'ho manager, national manager of marketing and managing director at companies such as Pacific Century Advisors. Prudential Asset Management and Dreman Value Advisors. He has been quoted in The Wall Street Journal Fortune magazine. maga-zine. Business Week. The Street Com and other business publi-caiu publi-caiu '.vs. Readers with questions can make contact bv anting Richard Mastain c o The Park Record. Ski industry hears troubling numbers Continued from A-17 Sunday crowd and another for the Sunday-to-Thursday group. "And they had better be different differ-ent messages because they are different dif-ferent groups," Yesawich advised. "The week-long vacation has been in decline as an ev ent for years. The predominant demographic now is a four-night short vacation, with one of those nights being a Saturday. In short, l a long weekend." "Remember the "Me generation' of a few years ago?" he asked. "We call this the Me.2 generation - the Me generation again, but more con nected, hence the "dot -two.' Nine of ten of them say they feel more in charge, up from eight in ten surveyed sur-veyed four y ears ago." The Me.2 generation is also less apt to compromise their principles -51 percent today, against 63 percent in 1997 - and 72 percent say they rely upon their own instincts or the recommendations of friends or family fam-ily when choosing vacation products." prod-ucts." Yesawich added. "It's a more independent group out there, who want to do something different, who want convenience in packaging of vacations but who also want to do their own research into the product. They are more apt to bargain, they have less time for vacations, and they want to do more while on vacation." Yesawich said, "yet they want to be able to relax, too. That's the industry's challenge." In the next issue: A tough prescription to heal the industry's demographic woes. 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