Waiting for the big Kahuna Message Board

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Strategies & Market Trends : Waiting for the big Kahuna

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To: Cynic 2005 who wrote (6138)	10/10/1997 10:40:00 PM
From: IQBAL LATIF	of 94695

If Corporate profits drop-US bond yields will sky rocket! who is going to pay for Uncle Sam defecit. Vertical line from April was just a belated recognition of S&P aggregate gains in profits which remained unappreciated by the investors. Why GM or C or F is not being valued at 50 times earnings- yesterday Ford unlocked 18 billion $ from its financial arm and gave 80% of the stock free to share holders because the market does not appreciate the financial business, now if it was a hype driven market we should have seen astrnomical valuations of these stocks- why JBIL was put to death in last few days- failed margins- you are missing the point by highlighting 50 P/E of KO but forgetting that coke as you know is a symbol of new affluence in the new emerging world- what is the harm in giving stock its due if growth justifies the valuations. KO will in 5 years treble its sales - just sub-continent is a market of one whole US- not that sub-continent will have same consumption pattern but even a 10% consumption gives KO a valuation due underlying justification. MSFT has a 50 multiple- do you know what is the total market of software in the world it is 128 billion $ (source Fortune) out of that MSFT has only a fraction- I would think that US being 75% (Harward business review) owner of all software exports in the world willl dominate the market even more cmprehensively in next few years so would MSFT- it is these prospects duly recognised and valued by marekts- take these prospects out of the equation and you have Ford or C- I will agree that absence of these circumstances just cited their will be no justificationn of these valuations. This divergence of US bonds is strange because if you are longing bonds it certainly a re-affirmation that bonds are heading to 6%- this can only happen in a non-inflationary environment- if conditions remain subdued on inflation front and we continue our slow progress we would certainly see easing and not tightening -in your scenerio markets will rally as corporate profits will keep growing in a benign environment- anyone who is long of bond cannot justify so much pessimism on US assets and equities- Please allow me to point out a flagrant contradiction in your argument and that is if US bonds are so dear to this thread and equities are not or future prospects or corporate income reliability is suspect= can you please answer how in face of falling US profits which forms nearly 50 % of 500 billion deficit which is reduced as a windfalll from new economic growth can be justified- if your thread argument of falling corporate profits is accepted I would have no fear in highlighting the fact that bond yields will rise as deficit will yawn in face of a catastrophic collapse of equities and corporate profits. Bonds and equities are US assets divergence is in theory a good idea practically I have just shown you how imperfect it is. The fall of equities willl lead to massive unprecedented down grading of corporate debt - once private sector debt is downgraded- the investors like anyother country will also demand higher yields from sovereign US assets and bonds as they would discover suspect relation btw revenue collection and uncle Sam ability to pay- once they know that corporate America is unable to spew profits they will take the bond TB to yield much much higher- Uncle Sam by the way is an over-extension of corporate America-you destroy corporate eqities you also tarnish Uncle Sam debt rating- this is a fact. No triple A for a country whose private debt is rated lower. Remember Mexico and TMX. I hope your thread will try to answer this line of argument in partcular as this is a very strange mix of logic here, I must be missing something.

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