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To: FACTUAL who wrote (542)	4/13/1998 8:56:00 AM
From: Arik T.G.	Read Replies (3) of 686

Factual, As long as you talk about the US companies role in global economy I agree, but the main fault in the argument for yet another increase in stock prices is that it neglects to recognize that the current (historically very high) P/E is multiplying profits already high as a result of improving margins over the last four years. The S&P 500 index is about 9 times higher then it was at the beginning of this 15 years bull run. Off the 9 fold increase half (X3) is a result of increasing expectations - P/E is about 3 times higher - and the other X3 increase is a result of better earnings. (x3 P/E) times (x3 earnings) equals (x9 stock price). New Era analysts say high P/E is unimportant because earnings will continue to rise. Will they continue to rise forever? Off course not. Looking at change in earnings over an extended period (50 years) shows how volatile they are. Current stock prices of KO and MSFT already reflect continued growth in future earnings. Even if those companies will continue to grow, but in a decelerated rate, their stocks will get hit. Intel is a great example- the company that symbolizes the PC boom is now a mature company, and foresees continuously declining margins (management discussion of Q3 results). Only four years ago the market considered Intel a cyclic stock, not unlike Ford and GM, and traded it for 7 times earnings. After four years of growing profits the stock traded last year at 23 times (the much bigger) earnings and then (Q3 results) disappointed by declaring future growth will be hindered by lower margins. What I believe is that we're now at the peak of the cycle, and that stock prices has for the past year neglected to incorporate the risks involved. Therefore I predict a very big correction once the investing public begin to understand the actual risks. When looking at the major role of the stock market and leverage used on it, one cannot escape the conclusion that a market decline of more then 25% would trigger a recession and would cause a positive feedback resulting in a very severe bear market not unlike 1929-1932. ATG

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