well i got something different from the interview, stuff you chose to omit.
>>You've found stock prices to be insane in many corners of the stock market?
A: In a word, yes. Particularly disturbing is the dot.com phenomenon. It's bad enough if you invest in Cisco Systems at over 100 times earnings. This means that you are content with an earnings yield on your money of less than 1%. Imagine how much and how fast Cisco earnings have to grow to justify that kind of valuation. I, for one, am unwilling to make that bet. It doesn't mean I'm right, but I certainly sleep better at night. How can investors today buy companies that are basically selling at a multiple of their capital burn rate?<<
>>Well, Cisco, at least, is a network road builder.
A: That's true. It's only a question with them of valuation. But if I'm having trouble with Cisco's valuation, think about how insane are the valuations of dot.com companies. They are scraping for patches of real estate on the Internet but are in businesses where few barriers to entry exist and competitors are being created overnight. These companies face an absolutely brutal competitive situation and yet sell for high multiples of revenues. If this isn't tulip mania, I don't know what is.
<<
>>Certainly a lot of broadcasting, newspaper and magazine companies are increasingly dependent upon this phenomenon for a growing share of their advertising revenues.
A: That's why the effects of the inevitable collapse in the dot.com mania will radiate throughout the general economy and quite possibly trigger a recession. Take dot.com advertising, for example. The money they are spending on advertising doesn't come from earnings or in many cases even from revenues. The funds are coming from recycled IPO money.
Q: And that's not sustainable?
A: Of course not. Likewise, you can't do present-value analysis on any of these companies. Who can guess when any of them will achieve even break-even status?<<
>>The bigger risk to the economy, of course, will come from a closing of the IPO window and the bursting of the dot.com bubble. The economy would lose much of its current buoyancy.
The best analogy I can give to the current situation is what occurred in commercial real estate between 1984 and 1989. Nearly every building built in America at the time was worth less than its construction or replacement cost the day it was finished. Yet all that construction spending really kept the economy going. But once the emperor was found to have no clothes, the spending stopped precipitously and the economy went into a dive. And, unfortunately, the longer this current phenomenon lasts, the greater the probability exists that we are going to see a significant downturn in the economy, as opposed to a soft landing.
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