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Ericsson disconnected the dial tone for millions of investors today.

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        12-10-98         High     Low     Volume   Advances Decline
DOW     8841.58 -167.61 9012.79  8823.30  750,959k    927   2,114
Nasdaq  2015.96 - 34.46 2058.37  2015.72  873,543k  1,568   2,552
S&P-100  574.16 -  9.89  584.05   573.80   Totals   2,495   4,666
S&P-500 1165.02 - 18.47 1183.77  1163.75            34.8%   65.2%
$RUT     396.50 -  5.46  402.23   396.13
$TRAN   3012.55 - 51.25 3077.42  3010.21 
VIX       27.68 +  2.25   27.74    25.18 
Put/Call Ratio      .55

Ericsson disconnected the dial tone for millions of investors today.

On Thursday it was the Swedish telecommunications company LM Ericsson AB's turn in the earnings confessional. The company said it expects its 1998 earnings and sales to fall below analysts' expectations. The company also said it will cut 10,000 jobs worldwide. The problem? Nokia has been beating the heck out of the competition in the mobile market place. Ericcson had been the world leader but now Nokia has 43% of the market and growing fast. We like Nokia and have been waiting for the pull back from the huge gains last week. If the market firms Friday jump on Nokia. We plan to recommend on Sunday.

Ericcson may have led the charge downward today but they were not alone in the group. Coca Cola (KO), Polaroid (PRD), Revlon (REV), Boeing (BA), Union Carbide (UK), JP Morgan (JPM), Cabletron (CS), Merck (MRK), Proctor & Gamble (PG), Johnson & Johnson (JNJ) have either already announced earnings warnings or have been downgraded by analysts expecting earnings problems. The earnings forecast for the S&P 500 is now +4.8%, down from the +9.4% estimate one year ago. This bleeding of earnings is depressing the market, which is driven upward by positive earnings not negative estimates.

After trading above 400 for two days the Russell-2000 dropped -5.46 to 396.50. Declines beat advancers by 2:1.

The continued warnings from the multinationals are fueling fears of a continued global deflation spiral. Oil is at a low for a decade and expected to go lower. Commodity indexes are at a 20 year low. This deflation cycle is in turn causing increased fears of a worse global recession. The good news again is a stronger chance of another rate cut on Dec 21st. We are still less than a 50% chance but climbing. The Fed must look out farther than the market to make these decisions. They must look out a year or better. If a case can be made for the continuing global recession then the "oasis of prosperity" Fed body would be forced to continue the rate cuts to head off the "D" word here. Remember, we are the global bank for all practical purposes.

The bullet proof tech sector showed some weakness today. Since they have had no support from the other sectors it was only a matter of time before they gave back some of the recent gains. They were holding most of the day. Even when the Dow was down and bouncing off 8900 at midday the techs were still strong. It was not until the last few minutes that the individual stocks finally broke. MSFT was up and setting new highs at 3:PM before finally closing -2.06 in the last ten minutes. Dell was up early and held all day until the very end, closing only -.81. Yes, the Nasdaq lost ground today but I don't think it was a mortal wound. The most injured was INTC at -4.56 but it has had a huge run recently. Simply profit taking.

The second factor cited for the drop is the impeachment crisis. The House has drawn up four articles of impeachment and at least one will be voted out for trial in the Senate. This farce will stop there. The humiliation will stop there, one way or another. The Republicans have the votes in the House to vote it out but in the Senate there are only 55 Republican votes and this is not near enough. It takes 67 votes to impeach. It would take all 55 Republican votes (never happen) and 12 Democrats to vote against party lines to impeach. It just will not happen. The dog and pony show we are now enduring is simply a political attack on Clinton aimed at embarrassing him as much as possible before his term is out. If they can keep other Democratic candidates from using the persuasive Clinton as a campaigner in the next election, then they will feel successful. Even though this process will end with a hung Senate and no impeachment it is still dragging on the market. Overseas investors, used to governments rising and falling, sometimes overnight, are worried that the U.S. government is in trouble. They do not understand our process and fear the worst. This slow movement out of our market and into bonds or other markets is not helping maintain the running bulls momentum.

American fund managers may be using the impeachment as an excuse to lighten up their holdings before the year end in case more deadly facts appear. A carefully worded comment today by a prosecution lawyer stated that "in the process of investigating the current charges they found clear evidence of other criminal activity." When the special counsels office was asked about why the evidence was not made public, they replied that the evidence was being with held pending other criminal investigations which should be completed soon. They asked that the evidence be kept confidential pending the completion of their investigation. Counsel reluctantly agreed. Smear tactics or smoke screen?? Time will tell.

The Brazil markets were flat today with continued worries about passage of reform legislation. Cardosa said after the market closed today that he would call s special January session to pass further reform legislation. He said he was committed to the IMF terms and would press for their passage.

Japanese blue chips opened down on the Dow drop but had no immediate impact on the S&P futures which have been trading up slightly since the markets close.

Fridays recently have been up in spite of the negative news. The last six Fridays have been positive, some very positive. I know that "past performance does not"..etc...... but I think traders are also looking for an entry point for the year end run and a springboard into January. Volume next week will start to fall off for the holidays and many traders will want to get their positions filled soon. Still, we could go either way but I would look at any further drop as an opportunity to start new positions. Oracle beat their earnings estimates significantly today and may help the tech sector on Friday.

Good Luck

Jim Brown

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