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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: DWB who wrote (33594)	6/29/1999 2:43:00 PM
From: Art Bechhoefer	Read Replies (2) \| Respond to of 152472

There are several reasons for the action the Fed will probably take to raise interest rates. The reasons may be correct, but the actions are not necessarily the right ones to achieve the result the Fed has in mind. First, it is now well accepted that the Fed interest rate actions can influence national elections. If the Fed tightens now, rather than closer to November, 2000, it makes possible a lowering of rates next year, which would stimulate the economy and buttress the claims of the Democrats. Don't worry too much. The Feds took similar actions, which helped Reagan in 1980, and Bush in 1988. Second, the Fed, particularly Greenspan, has taken a dim view of the stock market going higher and higher. It's probably due in part to the members having failed to get their QCOM shares early on, and they'd like another chance. But increasing overall interest rates in order to curb stock market excess is like trying to cut paper with an axe. The better solution, and one which would not have an adverse impact on the rest of the economy, would be to raise margin interest requirements, thereby removing some of the speculative excess and reducing the likelihood of a meltdown later on, should business conditions turn sour. Third, if the Fed is really worried about the inflationary aspects of low interest rates, they should recommend legislation that would reduce (yes, reduce) the corporate income tax rate, substituting a low percentage value added tax. The reasoning here is that companies involved in mergers frequently overbid for assets, figuring that the tax deductibility of interest rates on the money they borrow to buy the company will make the purchase of those assets less expensive. If they borrow at 9 percent, and a third of that is in effect covered by their reduced corporate taxes, it means the acquisition needs to return only a little more than 6 percent to be profitable. That is inflationary, and it explains why companies like AT&T pay so much for McCaw Cellular and still make enormous profits. The obvious solution is to reduce the corporate income tax rate to some nominal figure, such as five percent. You'd see a significant reduction in mergers that produce no additional business but merely put it all under one roof. And yes, it would reduce stock market excesses, but it would show all the more clearly why companies like QCOM, which creates new business by design genius, are undervalued.