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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 72.11

-0.3%

Nov 5 3:59 PM EST

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To: Jacob S. Rosenberg who started this subject	11/11/2000 9:19:39 AM
From: John Malloy	Read Replies (8) of 77397

I maintain a correlation between the NASDAQ index, nominal GDP, and the interest rate on 30-yr government bonds. The correlation accounts for 98.4% of the variation in the NASDAQ. The standard deviation, which measures how badly the data scatter around the correlation line, is 7.0%. Statisticians normally regard variations within two standard deviations of the expected value as normal variations. Variations larger than two standard deviations means something unusual is going on. Early this year the NASDAQ reached 5.5 standard deviations higher than the expected value - a solid indication that the market was overvalued. Yesterday the NASDAQ closed 2.3 standard deviations below the expected value. That means we are near the bottom. At the current GDP and interest rate, the correlation says the NASDAQ should be 3546. The lower boundary of normal deviation, two standard deviations below the expected value, is a NASDAQ of 3097. That is approximately where we are now. A NASDAQ of 1500 would be 12.7 standard deviations below the expected value. Extremely unlikely. John Malloy

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