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Politics : Formerly About Applied Materials
AMAT 322.32-5.6%Jan 30 9:30 AM EST
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To: Gottfried who wrote (4627)5/18/1997 8:40:00 PM
From: Cary Salsberg   of 70976
 
Gottfried,

A bear market is a more justifiable concern as the market continues to go higher. We should consider its effects on AMAT, NASDAQ, and the DOW, but it is a more difficult subject than any which have been discussed here. The depth and duration of a bear market depend on its cause. Traditionally, the stage is set by overvaluations at the end of a bullish period for business and the markets and it is usually initiated by rising interest rates at the end of the business up cycle. The same forces that start the market down also push the economy toward recession and stocks suffer the double whammy of contracting PEs and lower earnings as business slows. Currently, I see that the stock market is very highly valued and that the economy has been very robust. Interest rates have been high throughout the recovery if they are compared to the underlying inflation rate. Inflation has been subdued, especialy wage inflation. I believe that wage inflation has been and will be held in check by business' ability to export most labor to countries with much lower wage rates thus creating an oversupply of candidates for labor that is used domestically. As long as inflation remains subdued, interst rates will remain reasonable and the economy will continue to grow. These thoughts lead me to conclude that there is little likelihood that a bear market will be associated with a recession. Therefore, the bear period will be shorter and will be primarily an adjustment of PEs.
For AMAT, consider the expected EPS growth over the next 5 years and apply a PE reduced by 30%.

Cary
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