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Non-Tech : The Critical Investing Workshop

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To: limtex who wrote (6327)	3/7/2000 5:50:00 PM
From: MulhollandDrive	Read Replies (2) of 35685

limtex, Excellent post. I find it fascinating to watch the talking heads try to unravel Greenspan's justification for raising rates in light of the "new economy" with no inflation and accelerating growth. Greenspan obviously has the equity markets in the crosshairs, but the reality is that raising rates will only kill off the "old economy" stocks. And as you have pointed out, the high flyers will only go higher because those companies have no need to go to the capital markets. The can go to the equity market. I thought the remarks of JDSU's CEO yesterday was instructive. When asked what effect the rising interest rate scenario would have on his companies operations he answered that they have no debt and about 1 Billion in the bank. Another aspect of the current market conditions that I rarely see discussed is the sea change that has occurred for the individual investor. Part of the reason that the "high flyers" fly so high is that information is available to the individual investor in such a timely matter that decisions can be quickly made as to how to allocate one's assets for maximum gains. This has been a liquidity driven market with the lion's share going to the high growth new technology companies. It doesn't take a rocket scientist to figure out you're better off to invest your retirement in CSCO instead of KM. Much is made of how the individual investor will soon be forced to endure financial reversals because he's a blind, dumb bull just throwing money at this market. All one need do is peruse SI and study the postings of the participants who have invested in the "high flyers" to see just how sophisticated and knowledgeable they are. I think it will be a sad commentary for him at the end of his tenure as FED Chairman if he takes upon himself the goal of interfering with the markets. But more importantly he may precipitate a recession that will "kill off" many "old economy" companies while the "high flyers" will continue to soar. The last point I want to make is about this silly "wealth effect" concern. Even if you accept the premise as true, how many people are running to stock up on food, energy, and other basics because their stocks are up? If there is any tangible result it would most certainly show itself in the high end goods. So more people go out and purchase a Mercedes or boat? This is a bad thing? I guess if the demand for such items outstrips the supply, those manufacturers will have some "pricing power" but does anyone really think that having high ticket luxury items going through the roof is going to effect the overall economy? Come on! I think Mr. Greenspan should accept the realization that our asset growth stems from our government establishing non taxable investment vehicles which opened a floodgate of dollars to go into the equities market and as long as the tax code remains as such, the flow will continue. He can't kill the market with .25 basis point increases, but he can widen the gap between the capitalization have's and have nots, he seems to be doing a fine job of that. bp

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