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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Berney who wrote (26277)	9/19/1999 5:13:00 AM
From: KeepItSimple	Read Replies (6) \| Respond to of 99985

The basic problem with the equities market is this: There is a finite amount of "percentage" available in any given company for investors to invest in. For example, take company X, with profits of 20% a year. Now, that company makes a finite amount of profit per year. In a "real" value equation, owning a percentage would entitle you to a percentage of that company's profit. Of course, the law of big numbers quickly revealed a problem- if you're trying to sell stock, you can't give dividends after a certain point, because there are simply too many investors out there- the dividends would quickly become a smaller and smaller piece of the same pie, to the point where the return was miniscule. The solution? Stop paying dividends. Start applying the greater fool theory as the RULE of investment. Dell and Microsoft and Intel are great companies, with no doubt. But there is the fundamental problem of big numbers: you can't have 20 million individual investors "sharing" in the profits of those few companies. The numbers simply don't work. This is the FUNDAMENTAL flaw that will eventually bring the house down. Since you no longer have dividends as a reason to own stock, you've only got the hope that someone will eventually pay more for your shares than you paid for them. You ask- what does Microsoft need to sell shares AT ALL for? I mean, they've got 80% profit margins and billions in profit a year. They don't even come close to spending all that cash. They don't pay dividends, so why do they even need to be a public company at all? Simple- so that insiders can sell those shares to the public. A quick glance at the following table shows what the real purpose of being a public company has become. It's not, as sell-side analysts would like you to believe, a way for companies to raise capital for expansion. It is simply a way to fleece the public. The product or services these companies claim to produce is irrelevent. The only thing that matters is selling stock. It DWARFS all other figures. softagon.com As you can see, nearly every internet company in the market today has yearly insider sales that are MULTIPLES of their individual revenue. We wont even get into the subject of multiples of non-existant profits. Established tech companies are nowhere near as shameless in their dumping of shares, but they still dump billions per year. The only question is, how long can this go on? Is it possible for every man woman and child to invest in Intel, and receive a 20% return on a $10,000, amounting to multiples of the company's actual revenues? It's just a pyramid scheme. Once you disconnect dividends from the paper, the certificate represents nothing at all. Sure, there are companies behind some of the certificates, but if they are generating MULTIPLES of their actual revenues in stock valuation, and doubling in value each year, when will it break? Can every american just sit back and invest in stocks, and let third world laborers do all the actual work? Internet stocks may not seem that extreme at all once the entire market becomes similarly valued. The only thing that can stop this, of course, is when people realize that the way to get rich is to go public, no matter how outlandish or insane the company. The endless flood of worthless and fraudulent IPOs we've seen this year is only getting started. The book-selling analysts who recently claimed that the dow should be at 36,000 and every company should have a PE of 100 are forgetting the problem of ENDLESS NEW IPOs.. After all, why don't we value EVERY business in america at a PE of 100? The corner flower shop: 50 million. A large supermarket in a suburban area, at least 500 million. Pretty soon everyone in america is a multi-millionaire- hell lets start valuing people at 100 times their yearly earnings, and give them cash up front! Joe six-pack making $30,000 a year should get a check for 3 million. But applying the smallest effort towards logic reveals the fatal flaw- INFLATION. If every business is worth 100 times its yearly earnings, and every man woman and child are valued similarly, then a loaf of bread costs 2 grand. There is simply no way around it. Just ask anyone trying to buy a house in silicon valley- the most direct and obvious effect of rampant stock market mania and asset inflation. A condemned shack that might fetch $25k anywhere else in america (outside of manhattan) regularly sells for half a million dollars. Internet execs who are insanely wealthy by any normal measure have to cough up millions to live in a decent dwelling. Their monopoly money is quickly converted according to the local inflation index- and it doesn't buy very much at all.

To: Berney who wrote (26277)	9/21/1999 7:11:00 AM
From: Gersh Avery	Read Replies (1) \| Respond to of 99985

Hi Berney .. Re Yen/Yank .. scratch that .. Yank. You throw a rock in a pond .. a wave will probably arrive at the shore shortly after. You could say, statistically, that: 1. the wave doesn't show up at the same moment the rock hits 2. sometimes no discernible wave materializes at all therefor, because of these two items, the rock has no relationship to the wave. "but this seems to be a fixed income (interest rate) issue" ummm .. interest rates seem to have impact on stocks. Leading indicators are nice. Yank looks bad this morning... against all of the other currencies, not just the yen. After the gap down this morning there should be an attempt to fill the gap. Probably ~9:50. I say that time because of the momentum that will be there from the first move down. The time and amount of the attempt to fill the gap will indicate to me the magnitude and duration of the move down. The time range for this attempt will be from 9:35-9:55. During that attempt to fill the gap I'll get short. I plan to ride a SPX short until ~11AM, cover and then about noon get short on the NDX into close. FWIW While I got my 401 in overseas fund right now, I feel like it should be in cash .. but what cash??? the dollar??? Gersh