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Politics : Ask Michael Burke

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To: Knighty Tin who wrote (65070)	7/22/1999 4:35:00 PM
From: Freedom Fighter	Read Replies (1) of 132070

Mike, AG tried to make a case that historic stock prices might be reflecting higher levels of productivity. IMO there are leveling effects between 'real' borrowing costs and 'real' returns on business capital. Even if the business capital stock becomes more productive in the short term, it would probably be matched by a greater demand for capital to invest in order to take advantage of the higher returns. Depending on the amount of savings available to invest, that would eventually cause either a decline in the return on capital or a rise in the level of 'real' borrowing costs and thus drive the values back down to the level of the capital stock. IMHO the "average" business is worth approximately the replacement cost of its assets. (Here I include some assets that are not captured by accounting standards. I do not think they are not large in aggregate though.) Only those businesses that can generate sustainable (key word sustainable) returns on capital that are above market rates of return are worth more than the capital they have invested (goodwill). Those that generate lower returns would be best off liquidating. WE ARE VERY OVERVALUED IN AGGREGATE! AG is the bubblemaster! Wayne

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