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TWST: Ursula, turning to what's ahead as we move through 2000, first, how will higher interest rates alter the outlook for the economy over the next six months and longer term, into 2001?

Ms. Moran: It depends, of course, on how high interest rates go. Interest rates are at the moment obviously higher than they have been in the last year or so, but we're by no means at historic highs for interest rates or mortgage rates. So, if we stopped at this point, if Greenspan decided not to increase rates any further, I tend to think that the effect on retail would be pretty modest. And in some of the sectors, for example, in the consumer electronics sector, our research suggests that a strong product cycle can absolutely overwhelm some softness in the external environment. That certainly was the case with PC sales back in the mid-1990s. The Fed increased interest rates a total of 250 basis points and eventually produced a “soft landing,” but meanwhile PC sales remained red hot and the retailers chased demand as fast as they could...

TWST: Ursula, what are your three top picks?

Ms. Moran: Well, not to sound cagey here, but it would depend on your time frame because despite the volatility that we think will probably continue to characterize the retail segment in a rising interest rate environment, and despite some of the concerns we've talked about in this conversation such as what higher interest rates would do to retailers, we are recommending a number of the stocks in our coverage. Some are attractive because of their positioning and growth characteristics, and others are attractive because they're just so cheap at this point that we think that the prospects for things to improve enough to move the stocks are reasonably favorable. So depending on whether you like growth or whether you like value, or whether you want to own a stock for a short time or for a longer time, I'll give you some options. In the value camp, we think that Toys 'R' Us (NYSE:TOY) is too cheap not to like a lot at these prices. In this company we do see some things that are important and need to improve. Toys 'R' Us is taking some dramatic steps in restructuring their business. They just announced the partial IPO of their Japanese business. They have another $1 billion authorized to buy back shares. And they've got a new CEO who's going to give it the old college try to turn around the US toy stores, which ultimately is the make or break issue for the company. But at $13 a share, the stock trades below 10 times expected earnings (before Internet costs), and those earnings are a lot more likely with the share buybacks that they've announced. So we would take a chance on that.

TWST: What time frame would you give Toys 'R' Us to work out these problems?

Ms. Moran: Well, as a trade, I think it's got some appeal now. The timing of the fixing of the US toys stores is not, unfortunately, for those who like instant gratification, since it's a multi-year process. The problems that the US toy stores have didn't come about in the space of a quarter or two, and are not likely to be fixed in the space of a quarter or two. So I think you could trade it to the high teens on the notice that the first actions that the new CEO has taken look like they're going to be steps in the right direction -- they've got the restructuring things; they've got the buybacks; they also should have the launch of PlayStation II in the United States later this year, which is likely to be a positive event for them. So those are all trading issues which could take the stock from $13 to the high teens.