Dow Jones 8,341.63 +8.78 2:45 am PST, December 31, 2002  NASDAQ 1,335.51 -4.03 For info, visit access.smallcapnetwork.com S & P 500 879.82 +0.43 To be removed, please click here Russell 2000 383.09 +0.86 VOLUME 02: ISSUE 85 Year End Wrap-Up With Pat Bolland/Part Two We're continuing our chat with former CNBC stocks editor Pat Bolland on his views for the coming year in the market. Pat took time out over the holidays to bring his informative and prescient views to Small Cap Digest readers.    Small Cap Digest: If you look at the numbers, less than one percent of the listed companies had even heard from the SEC.  We're only talking about a couple of hundred companies as opposed to --if you believe the media -- every CEO in corporate America receiving a letter of interest from the SEC. Pat Bolland: Exactly. That's exactly the point, but as a result of those two hundred companies, everybody is scrutinizing their books. It's even Martha Stewart-- a classic case. Here's a lady who had a relationship with Sam Waksal of ImClone. She may or may not have received a phone call from Sam saying, " Get rid of your stock". She saved herself, perhaps, a paltry few million in stock but the allegations alone cost her billions of dollars in terms of her own stock price and her own shareholdings in Martha Stewart Omnimedia.  You can't win for losing. SCD:  I've known you for more than a few years and I know you always have some little small-cap stocks you're looking at. Anything out there presently that you find interesting, without getting into any sort of recommendation at all? P: I think it's fascinating that two years ago there were so many companies that were coming to marketplace with harem-scarem kind of ideas--particularly in the biotech sector.  They raised a lot of cash very quickly because biotech and dotcom were so popular. The stocks have come down to a fraction of where they were, and if you were to punch in your stock screener and look for corporations where their market capitalization is lower than the amount of cash that they have, or short term securities that they have on hand-- the list would go on and on and on.  There's lots of these small biotechs that have high cash levels; and they're not necessarily-- I mean you have to look at the cash burn rate-- burning through all the cash that they've got. That makes them perfect takeover candidates for either a great big drug company or another biotech company. SCD: Any names -caveat emptor in place as I asked the question? P: I'm not in the habit of making recommendations -- I'm going to stay away from that one.  But, having said that, it's easy enough to find them if you go through your stock screeners and use a little bit of scrutiny. SCD: Fair enough.  Savings rate in the US--not that it's a boring question-- but I'm trying to ascertain some of the tenets that are going to improve the market.  The savings rate in the US has been just virtually non-existent. P: But wait, where are people putting their money?  They're putting their money into their homes.  Investors aren't taking their money and giving it to the bank to earn 1.5 or 2%.  In fact, if interest rates stay this low, why not borrow more money against my home because I can and it's cheap.  So, yes, you can look at debt levels continuing to climb, but where is all that being put? And that's why I look at the housing sector as so important.  If the housing sector starts to collapse, and that means lower levels of immigration, lower levels of moving on up, if you will, then we've got a big problem as far as debt is concerned.  But if that doesn't happen, I'm not worried about the debt. SCD:  But Pat, if someone borrows money on the equity in their house and then puts it in the market, understanding the tax advantages in that, but the market is not kind to them, does that not run the risk of a double whammy? We've seen lots of pundits over the years  --when the market was running--talking about "Take equity out of your house, put it in the market, get the tax advantage." Won't that stunt a market improvement? P: That is a risk if they put the money into the stock market. But everybody was so badly burnt in 2001 and 2002 that what we saw in 2002 was that they weren't putting their money into the stock market.  So what are they doing?  They're spending it.  They've built up equity in their homes, they go out and they buy a treat for themselves or they pay for their kids' education or they tuck it away into a long-term bond fund for their retirement.  Who cares how they spend it?  But they are spending it, even if the money isn't going into the stock market.  Suppose for a moment that it does start to come in-- even in a small way -- into the stock market: that would really be a big boost as it feeds on itself.  It's a catch 22.  They're taking the money out of their houses, what are they doing with it?  Right now they're spending it away from the stock market because they don't want to assume that risk you're referring to. SCD: You mentioned biotech earlier. Do you see more opportunities in the biotech market given your fundamental outlook than in the dotcom area or the technology area? When you can buy Sun Microsystems at the current price, when you can buy these companies such as Oracle that are not going away over the short term or even the long term, there seem to be some great opportunities there. I'm trying to look to see if there's a mix of things that people should look at even though you seem hotter on the biotech area at the moment than, say, the technology area. P:  The reason I like biotechs more is only because they frequently have higher levels of cash and are small enough to be potential takeover candidates.  They're cheap stocks that you can get into and get a nice bang for your dollar.  The bigger corporations have a different problem-- in the high-tech space at least. Take a look at Oracle. While sales seem to be improving in the last half of the year, it has to restructure its sales organization.  That's not a good sign to see a company that's admitting that they have to break down between hardware and software and so on.  So Oracle's got some question marks as far as that is concerned.  Sun Microsystems has some equally challenging areas in the server sector-other companies moving into that and competing with them.  On the other hand, take a look at what IBM did three quarters of the way through the year.  They saw some real value in Rational Software and they went out and spent a couple of billion dollars to buy up the company at a hefty premium.  So on a case by case basis there is strength in the tech sector and these are companies that are not going to go away.  Dotcom is not going to go away either; it's just not going to be "Pets.com" that's going to light everybody afire.  It's going to be substantial earnings based corporations that are trading too cheaply. SCD: Now I read somewhere that you were under consideration for the host of Canadian edition of Who Wants To Be A Millionaire, True? P: Don't I wish. SCD: Pat, any final thoughts as we ride off into 2003?" P: I think probably something we didn't touch on that's so important-- and nobody is discussing it --is the political power that's ensconced in the White House right now and what that translates to on an economic basis.  We saw Harvey Pitt resign from the Security and Exchange Commission and be replaced.  We saw Elliott Spitzer lead the charge in terms of corporate malfeasance as far as the brokers are concerned.  And now the brokers have resolved to settle their differences with the federal authorities.  This is directed--maybe not directly by the White House-- but certainly the pressure was on the brokerage firms to get this thing straightened out quickly and now there's half a billion dollars going to go to independent investment research corporations.  Further, you've got Larry Lindsay stepping aside and John Snow stepping in and Paul O'Neill stepping aside.  So there's a whole new economic team happening in the White House and it's very friendly to the investor, this new team that's coming in.  It's not going to be a squeaky-clean process. It'll be a little bit messy, but it will give a better tone to the economy.  So, the White House, because of the mid-term elections, has centralized its power and now will turn its attention, not only to the war on terrorism but also to the economy. I think that that's going to play a big role in terms of turning the psychology of the marketplace around. SCD: Well it seems like George W. Bush is bound and determined to go into Iraq. Your comments earlier indicate that you think that's pretty much already priced into the market given that it would probably go much the same way it did in '91? P: Don't forget what happened in 1990-1991. As the war situation escalated and people were looking at the Americans' first venture into Iraq, international investors dumped American stocks. That doesn't seem to have happened yet in the marketplace.  We don't see the international investors dumping American stocks as the situation heats up in Iraq.  That tells me that despite all the noises coming from Washington and from the White House in particular, the international investors-- and myself included in that group-don't think that war is necessarily going to happen.  It's a war-gamesmanship thing that's going on, no question about it.  But at this point, there's not enough to get the White House and the American people to buy into moving into Iraq.  I don't know whether it's a given at this point.  So I think that it's priced into a degree into the marketplace, but it hasn't hit the public perception yet. SCD: So we have economics improving, the economic team improving, we've still got a certain amount of event risk, but things are looking, shall we say, more palatable for 2003, in your view? P: Yes, I think so. I'm not looking for 2003 to provide 15, 20% returns-though maybe on a sector by sector basis-- but who cares?  I think that there is a bottom forming and as we go into the next presidential election you can bet that the end of 2003 will be somewhat more robust than the beginning. SCD: Pat... thanks for joining us. We'll look forward to hearing you on "The Business News Network" nationwide, very soon. All the best for 2003. Let's do this again soon. P: Look forward to it! Happy New Year to all of our SCD Members and thank you for your readership throughout the year. We look forward to a great 2003 with you!! D I S C L A I M E R : The SmallCap Digest is an independent electronic publication committed to providing our readers with factual information on selected  publicly traded companies. SmallCap Digest is not a registered investment advisor or broker-dealer. 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