John, I think that market psychology (and thus price differentiation between sectors) does not change that rapidly. I agree with you that the nifty fifty are still over priced by rational standards, yet, give this market a whiff of a recovery and the mob will run over each other to buy the BRCM, BRCD, JDSU, EMLX and QLGC's in this market. On January third, your argument was just as valid as it is today, yet, BRCD went from $75 to $140 in barely three weeks. The process of PE compression takes a long time, thus my "scenario" of a relatively long period of market "stagnation" (but still a very broad range like 1900 to 5300 on the Naz), in which those high fliers PE come back to earth by the combination of increased earnings, but not much of an intrinsic increase in the price levels. As a template, look at the nifty fifty of the late sixties, they did not collapse until about 1979, long after the majority of indices and the stocks were selling at real bargains. By August 1982, the valuations were so compelling that no one wanted to touch them (they preferred treasuries at 16% of course <g>).
Zeev |
