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Strategies & Market Trends : Waiting for the big Kahuna
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To: yard_man who wrote (34883)12/3/1998 12:01:00 PM
From: Paul Shread  Read Replies (1) of 94695
 
tippet,

I hope you're wrong, for the effect it would have on all of us. However, I would point out that this is the third time the market has registered four straight double-digit gains, although admittedly not of this magnitude; it did so twice back in the 40s and 50s, and each time all that followed was a period of consolidation for a year or two. We had a PE of 26 in 1991; by 1994 it was down to 14, and the market posted gains in 1992 and 1993. As long as the economy stays this good, corporate profits will at some point take care of the valuation problem.

I do see inflation as the one threat to this market; I think the Fed cuts, the money supply growth and the Euro dollar launch could fuel inflation here in the U.S. a year or so down the road. But for now, real inflation is about 0.5% in the broadest measures, with GDP continuing to register decent growth. That's an astonishing combination. Corporate profits will rebound if that continues.

I do not consider deflation to be a serious threat; if we get to 173 on the CRB, I will take that threat seriously -- that would wipe out an entire generation of consolidation.

I agree the manufacturing sector is in trouble; I'm also glad their importance has diminished in recent years. BA itself does not trouble me; they were having problems when demand was booming. It's their fourth warning this year. No surprise there.

Good luck to you too.

Paul
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