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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era
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To: Berney who wrote (365)6/5/1998 6:38:00 PM
From: Freedom Fighter  Read Replies (2) of 1722
 
>Wayne, as usual the comments at your site are fantastic!

>Those "normalized" PE ratios are food for thought. How do you feel >the risk of the banks will come back to haunt them. In the low >inflation, low growth rate environment that you obviously believe >will be the story of the future, it seems difficult to believe that >interest rates would go up.

Thanks Berney. The environment in the U.S. remains favorable, I agree. The fact that there are still mergers going on regularly also helps. My problem with the banks is two fold and long term.

One, the prices for many are about twice what they used to get taken over at. (2 times book used to be normal) We are now in the upper teens on PEs and 3 to 4 times book. So I don't think the valuations leave any margin of safety. In fact I think they are overvalued. The fact that all the deals are done for stock indicates that also.

Second, I believe that the Asian crisis has not run its course economically. The banking systems there are reeling and the credit risks for U.S. and European banks is high. Some of this debt and derivative exposure is going to go bad and some is going to go in the non-performing category I believe. This may still be awhile away.

I just don't like investing in any business that is at its highest price ever and faces potential serious problems that I can't quantify.
Even if the environment is otherwise friendly. (which it is)

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