To OTC Journal Members:

Announcement- this weekend's edition will feature an audio interview with Geoffrey Briant, Chairman and CEO of PhotoChannel.com (OTC BB: PHCHF).
 

Market Comment

We finally got the big news on interest rates from the Federal Reserve yesterday.  The Fed Funds rate was raised by 1/2 point, which was the largest rate increase in years, and the sixth consecutive interest rate increase.

In our opinion this move by the Fed is good for stocks.  Markets became convinced last week that the Fed would act aggressively, and the NASDAQ was up 10% in the four day period preceding the announcement.  Today the NASDAQ was off a little on light volume with some traders locking in their profits.

Many people don't understand why a 1/2 point raise from the Fed is good for stocks.  Here's the reason: Our economy is a little overheated.  Everybody agrees that a 2% to 3% GDP growth rate is healthy, but not inflationary.  A higher growth rate lends itself to inflation.  We now have 3.9% unemployment, which is the lowest it has been in twenty years.  People are working and spending. 72% of the S&P 500 reported 1st Quarter earnings above analysts' expectations.  All in all, business is great.

The stock market believes that inflation is here today, which is bad for stocks.  So does the Federal Reserve.  However, always remember that the action in stocks today reflects where investors see things in six months.

The 1/2 point increase from the Fed was a strong signal to the investment community that inflation would be kept under control.  When interest rates go up the economy slows down.  A slower economy will lead to decreasing interest rates and the next Bull Market.  Right now we are in a Bear Market.

Look for another interest rate increase in June, with the last one coming in August.  That should cool the economy off enough to keep inflation out of the picture, and set the table for stocks to trade extremely well going into the Presidential Elections.

Here's how we see it

• Short Term-  Through June we will probably see light activity with an upside bias to the markets.  There may be a couple of down drafts to retest some of the recent lows, but on the whole stocks should start to behave better.
• Long Term-   July and August will be even quieter.  The markets will trade sideways on extremely light seasonal volume, and form a base from which we could see another upside explosion in the equity markets.  The interest rate increases will have cooled off the economy, and from there we can move up in big way.  

We cannot stress this enough- whether your preference is small or larger cap stocks, now is the time to be accumulating positions in your favorite companies for substantial profits in the 4th Quarter.  This is exactly what we said in September of 1998 just prior to the start of a 19 month Bull.  If you can handle a little volatility between now and then, you should be handsomely rewarded.
 

Upcoming IPO

We know that many of you locked in or are sitting on nice profits from the last IPO we featured.  The IPO was New China Homes (NASDAQ: NEWC, NEWCW).  New China came out in early March prior to the big correction, and the unit (1 common and 1 warrant) is still trading at a 60% return on invested dollars.

Barron Chase Securities has informed us that they plan on bringing out their next IPO the first week of June.   Busy Box is the name of the company, and we already featured it in one of our previous newsletters.  If you have an interest in participating at the IPO level, go back and review our original write up.  Click Here to go directly to that edition, or go to the IPO Alert button on our home page.  This is not fyi- this is an IPO that you can actually get at the IPO level if you choose to participate.
 

NetSol International  (NASDAQ: NTWK)

Those of you that have been members for a while know that this is the best stock we have ever covered.  We released our profile in January of 1999 at $3.88, and the stock traded as high as $75 earlier this year.

If you are still following the stock you know that it did not collapse along with the rest of the NASDAQ in April.  It held up in the $50 range until about 10 days ago when the stock dropped into a severe slide.  It closed today at about $20.

We believe that the drop in the stock can be attributed to a hatchet job mention of the company in Barrons magazine over the weekend.  Short sellers have been frustrated over this stock's resiliency, and needed a catalyst to frighten out shareholders.  Barrons didn't attack the company, but they did attack the fund manager that has accumulated an enormous position in the stock.  

We can't predict where the stock will bottom out, but it certainly looks attractive at these levels.  If you want to learn more about NetSol (NASDAQ: NTWK)  click here to go to our archive section on the company.  We may have more information for you directly from management next week.

THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. THE INFORMATION FOUND IN THIS PROFILE IS PROTECTED BY THE COPYRIGHT LAWS OF THE UNITED STATES AND MAY NOT BE COPIED, OR REPRODUCED IN ANY WAY WITHOUT THE EXPRESSED, WRITTEN CONSENT OF THE EDITORS OF OTCjournal.com.

We encourage our readers to invest carefully and read the investor information available at the web sites of  the Securities and Exchange Commission ("SEC") at http://www.sec.gov and/or the National Association of Securities Dealers ("NASD") at http://www.nasd.com.   We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at  http://www.sec.gov/consumer/cyberfr.htm.   Readers can review all public filings by companies at the SEC's EDGAR page. The NASD has published information on how to invest carefully at its web site.