Formerly About Applied Materials Message Board

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Politics : Formerly About Applied Materials

AMAT 269.55

+0.3%

Dec 4 3:59 PM EST

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To: Big Bucks who wrote (20335)	6/14/1998 2:13:00 AM
From: Jacob Snyder	Read Replies (2) of 70976

I've been thinking (and posting) for about 6 months now that I thought it was inevitable there would be a 20-30% correction in the S&P, sometime in 1998 or 1999, caused by one of these scenarios: A: tight labor markets cause wage inflation which causes price inflation which causes fed tightening. The yield curve inverts. This is the usual way bull markets end. B: tight labor markets cause wage inflation, which doesn't cause price inflation. There won't be price inflation because companies have no pricing power, due to foreign competition. Productivity increases don't keep pace with pay increases; profits fall, and eventually investors become unwilling to pay a PE of 40 for companies with 5% earnings growth. With the Japanese recession, which must inevitably spread to the rest of East Asia, and which will probably take a couple of years (at best) to resolve, I think it's now clear which scenario is going to play out: B. Sooner or later, the virtuous cycle (money pouring into the market causing asset inflation causing more money to pour in) will convert into an un-virtuous cycle (money flows dry up as people become uncertain, which causes stock prices to decline, which makes people more uncertain). These circular chains of cause and effect work on both upside and downside. We have seen it frequently and recently in lots of different industries and companies. There is no reason why it can't happen with the whole market. BB:Great articles. OT portfolio: added a few more ZNLAT at 10 yesterday. Hardly changes my percentages. I'll post my portfolio (percentages and gains) when I make a major move.

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