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Strategies & Market Trends : ahhaha's ahs

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To: Elsewhere who wrote (1220)	2/24/2001 4:46:19 PM
From: ahhaha	Read Replies (1) of 24758

I wouldn't disagree except you forgot two things: These companies are all trading way above their growth rates. Their stocks were bid up when the future was perceived to be rosy. Now it isn't and so they are over valued relative to what rate of growth is possible at their size and age. These are factors which transcend any consideration of interest rates. Rising rates only put the doubt where it belonged. I estimate these companies as a group could grow at 12% which happens to be the historic norm. Traditionally the market would award them multiples of 15. If this is true, fair value means the DOW must fall at least 2/17 of where it is now. That's only fair value. The second point which wasn't included in the above assessment is inflation. The universal assumption and the above calculation assumes a rate of inflation no greater than 2.5% per annum. I don't believe this will be the case. M2 is growing and has grown for 6 years at 12%. At the same time productivity is contracting and FED is aggressively adding raw reserves. They would have to add even more if there were a revival of output which there surely will be, because rates would exceed their tight fix. If financial assets world wide are contracting and output is slowing, where can this extra money go, since it is neither slowing nor decelerating? The answer is it will go by non-negotiable demand into compensation, compensation way in excess of output even at declining utilization. The corporations will have to increase prices regardless of pricing power or any other factor, because the slack is gone. Prices have priced their workers into poverty. The only way to stop this inevitability is to create unemployment. Every time that develops FED rushes in to prop up a waning prosperity and so delays the inevitable. The DOW will go way under fair, because markets aren't fair and that's why government wants to outlaw them.

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