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Technology Stocks : Xilinx (XLNX)
XLNX 194.920.0%Feb 14 4:00 PM EST
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To: Charlie Smith who wrote (2319)5/3/1999 5:08:00 PM
From: Lucinos  Read Replies (1) of 3291
 
I agree with you. Due to low inflation, money
flows in because the improved fundamentals. The
low inflation is definitely the "cause" and the
only driving force in the initial phase of a
bull market, and the "effect" of this cause is
clearly the increasing of PEs for stocks.

However, I would also like to suggest that the
"effect" of this cause of fundamental improvement
can easily transform itself and become the "cause"
of the running of stock prices in the second phase
of bull market. As you can see, at this phase
the psychological reasons plays a more important
factor than anything else. People is afraid of
being left behind. Without this psychological
reason, we can not explain the fact that the
PE ratios of XLNX as well as other good companies
have been doubled from their historical values
recently. This is the reason why I said
the PE value itself is inflated recently in
this market. It is all caused by the
disequilibrium of supply and demand of stocks.

The question here is very basic. Just as you
mentioned, if the inflation is rising, the
stock price will fall. However, before it
happens, do we feel comfortable with
XLNX's stock price at this high multiple of
earning growth. I would like to suggest to
stay with it until the changes of market
fundamentals.

Lucinos
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