Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: P.Prazeres who wrote (41106)	6/28/1999 2:01:00 AM
From: Berney	Respond to of 94695

Paulo, One of your best analytical summaries! I tend to focus my FA on the Big Boyz, 65 companies that represent 45% of the U.S. equity markets. Let me share some of my observations and concerns. First, I believe that there does not exist any meaningful inflation other than asset price inflation. Asset price inflation will be corrected if given the opportunity to do so. I call this the Peter Principle, after Peter Minuit. He's the dude that bought Manhattan from the Indians for some $21 worth of beads and trinkets. We all learned in school how he ripped them off. Well, if they had put that $21 in CMB at current interest rates, they would have more than all the U.S. money in circulation. The point is that all financial excesses will be corrected in a truly free market system if given the opportunity to do so. IMHO the truly outrageous over-valuation in the market occurred last year when the PPT intervened in the free market system. The EPS of the Big Boyz were $2.17 (average) in 1997, compared to $2.15 in 1998. If the market had remained flat, I believe it would have remained fairly valued. However, thanks to the intervention of the PPT, the Index climbed over 26% -- wham, the over-valuation was created. Based on my research, we have to end flat at the end of the year 2000 just to get back to the previous 6 year historical average PE. This will potentially mean a lot of pain and volatility between now and then. However, the Big Boyz have some problems. In the good old days, a 2x current ratio was considered the norm. Looking at the 55 non-financial Big Boyz, 27% have a current ratio of less than 1. Now, I'm from an old school that defines this as meaning that they are insolvent! I have a really big problem that the "just in time" inventory control has moved into "just in time" finances. Let's look at the actual and projected EPS comparisons for the Big Boyz. I reflect the actual median EPS to be: 9803, .52; 9806, .54; 9809, .50; while, 9903 was .56 (a 7.7% increase from the prior year). The projections for the next two quarters are great -- 9906, .60; and 9909, .64 (11% and 28% respectively). The Big Boyz need this boost as 45% had a negative 1 year EPS growth rate for the year ending 9903. It looks to me that the Big Boyz really need the 9906 and 9909 quarters to come in as expected just to get healthy again. A raise in interest rates at this point is going to kill the golden goose. So, where does the Market go from here. IMHO, no matter what the fed does (assuming that they are not stupid), we are going to have a great rally for the first three weeks of July (anyone else notice the double top in April and July of 1998). Then, my research shows that August has been the worst month for the markets over the last eleven years. I cannot imagine how it will get better with 1) the concerns of further rate hikes, and 2) Y2K beginning to rear its ugly head. In any case, shall we live in interesting times. To Bill, reconsider your BK date as I don't think it will start the day before options expiration for July. Move it to the following week and we will be in agreement. Berney