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Technology Stocks : Amazon.com, Inc. (AMZN)

AMZN 232.51

-0.9%

12:58 PM EST

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To: Sarmad Y. Hermiz who wrote (66114)	7/3/1999 6:11:00 PM
From: GST	Read Replies (3) of 164684

Sarmad -- I promised you an explanation for the net-yield connection. There are two points -- nets are 'positional' and the nets are 'growth stocks'. They are the MOST interest rate sensitive stocks in the market today. Here is the explanation: 1) A very liquid market eventually runs out of places to put money. Excess money (money that cannot find productive uses) searches for 'speculative' investments because credit is cheap and these assets can be run up in price just by taking easy credit and pumping it into the asset -- I sometimes call them positional because some classes of assets are much more given to speculation. Gold or fine art or real estate can all be good candidates for speculation -- but they have not been the object of choice in this market. Eventually, higher interest rates cool this speculation partly because it becomes harder to borrow money at rates cheap enough to keep the party going and partly because the money lenders sense the risks of a collapse in asset prices and raise the spreads for added risk -- the punchbowl thing. This time around, the party has been in the net stocks -- although it may be spilling into real estate now as well in some locales. 2) High multiple 'growth' stocks are the second type of asset that gets clobbered. You know the ones I mean -- the ones we pay unbelievable multiples for beacuse of their superior future profit potential. The valuation of all financial assets requires some 'discount' rate to calculate the present value of anticipated earnings. Companies with high current profits but low growth rates are not affected much by changes in the discount rate ('risk free' interest rates) because you will get your profits soon. Companies whose profits are still some distance in the future -- if they come at all, laugh, laugh -- get hit very hard as the 'discount' rate goes up. So there it is -- nets are positional growth stocks -- a double whammy -- and they will roller coaster along with significant changes in the direction of the currency-rates-liquidity environment. BTW -- you think three quarter point moves in rates isn't much? LOL -- We had long bond rates at what, less than five percent a few months back. A bond at 6.5% is almost thirty percent higher!!!!! Where is the repricing? You have been watching it in the nets -- and it ain't over.

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