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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club
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To: mister topes who wrote (9846)11/13/1999 10:41:00 PM
From: Justa Werkenstiff  Read Replies (2) of 15132
 
Don: Re: "You still must respect Brinker's long ago comment that a P/E ratio outside the twenties for the S & P 500 Index seems unlikely."

Yes, but I find it amazing that we are approaching that record valuation again in an environment where the inflation dynamics have changed since July. The leading indicators of inflation have accelerated since then. Okay, so productivity gains are offsetting these inflationary forces for now. But the risks are extremely high in this unprecedented environment (lowest unemployment rate ever). Yet the market as measured by the S & P 500 trades at close to its highest multiple ever. So even though Greenspan has said that productivity will plateau at some point and will not be able to offset the inflationary forces, the market has essentially discounted this favorable situation far into the future.

Re: "Or maybe it's a New Era and the P/E goes to 60 for the S&P and the market doubles next year. That would be Dow 22000 in Year 2000. Or maybe this entire deal is getting out of control."

I don't know about you, but if I am spending more of my time trying to justify higher multiples then maybe I am just trying to fool myself.

Re: "Notice how all of a sudden little old ladies are
discovering QQQ. They do not really care what it is,
they only care it seems to go straight up."

Sounds like April, 1999 all over again. I keep telling myself that the NASDAQ is not the entire market. I keep telling myself that the IPO market is just part of the story. I keep telling myself that the S & P 500 has not gone ballistic ... yet. It is very expensive. But I do not like what I see in the NASDAQ 100. It is troublesome. I don't think momentum players hard at work in the market is indicative of any economic slowdown. I can't envision an economic slowdown -- at least not in the fourth quarter.

Now here is food for thought: if the market embraces a new era in valuation, when will the economy ever slow down sufficiently in that environment to a sustainable level of growth if one accepts the existence and power of the "wealth effect?" Let's see ... higher valuations create more wealth which creates more investment capital or consumer spending. Less slowdown potential in that scenario.

I guess the greatest risk in my mind to the market is that the economy will not slow down sufficiently and may even accelerate again after all the rate hikes have been absorbed if the market "sees" a green light form the FRB.

BTW, that was a great November Marketimer. All the bases were covered. Nice call on the market as well. But did you ever imagine the NASDAQ would be where it was today? Wowser, now that is what I call an express train.
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