~OT~...Here is an Interesting (and Entertaining) Perspective on the Market...Complements of Forbes.com...
<<Soapbox : Rich Prospects
Investor Nugget of the Week
by Rich Karlgaard, Publisher of Forbes
First published in Forbes magazine.
Woody and the Dow
Start a conversation at a party about the stock market's fair value and you'll get back a range of opinions that'll whiplash your neck.
Value Man usually is first to speak. He is red-faced and aneurysm-popping, tweaked at having put his entire net worth into gold and T bills over the past ten years. To justify his error, he takes on a sanctimonious air. He rips into the stock market as being a depraved, drunken orgy--with cocaine snorted in the bathroom, laughing gas inhaled on the porch and church organists being debauched upstairs. He is sure to bring up the number 26, the aggregate P/E of the Dow. "Toppy?" you ask. "It's the very symbol of Sodom," hisses Value Man, "your own box seat in perdition, a scarlet letter of blood in the pages of Value Line. There'll be hell to pay tomorrow," he says, shaking his finger like a revivalist preacher. "The market will sober up and crawl back to its 20th-century mean P/E of 14. Then enjoy your 5880 Dow, you wretch."
Growth Man, meanwhile, sits serenely until it's his turn to speak. He asks for a sheet of paper and scotch-tapes it to the wall. He draws a curve, starting from the bottom left. The curve rises slowly, then--whoosh!--it suddenly bends upward like an F-16 taking off. On the right side of the page, the curve is nearly vertical, pointing up. "This," he says, "is what the Digital Age is all about: the mighty progression of chips and bandwidth. It's what propels the economy. That's why the market goes up, up, up. It is just trying to keep pace with its enormous twin jet engines. Fair market value? A 40,000 Dow sounds about right."
Accelerating Possibilities
A similar rowdy brawl in the middle ranges is breaking out all across America. Alan Greenspan's not-so-secret model pegs 8000 as the Dow's fair-market value. He's joined by Ed Yardeni, the Y2K worrywart. Abby Joseph Cohen, star savant of the 1990s, thinks 11,500 and climbing, albeit slower than before. A leading technical analyst, hedging his bets, says the market will swoon to 9000 this fall then soar to 13,000 during the next 12 months. Week after week, on Louis Rukeyser's TV show, one guru belches 8100 while another burps back 14,200.
What's the truth? A 40,000 Dow won't happen anytime soon. Not a chance. While the Growth Men have it right about the accelerating possibilities, Greenspan and his successors won't permit it.
The Value Men are wrong in and of themselves. They need no assist from Greenspan. They miss the fact that quantitative changes in technology have produced a qualitative change in the economy as a whole. The Value Men should heed the lesson of Robert E. Lee and Woody Hayes.
Blind to the New Reality
By June 1863, Lee had penetrated southern Pennsylvania. The Army of the Potomac thereupon followed him to Gettysburg. In hindsight, we know that Lee should have swung around and beat a path straight back to Washington, D.C., cutting the Union Army off from its base. Along the way, he should have stopped, found some high ground, dug in deep, waited, and opened fire when the Blues came. But "digging in" wasn't in Lee's vocabulary. He despised it as a cowardly way to fight a war. The infantry charge was pure; it was gallantry. That rifles, cannons and canister shells had reduced it to an act of suicide was lost on Lee.
The forward pass wrecked Woody Hayes. To him more went wrong than right when you put the ball up; besides, it wasn't toe-to-toe manly football. It thus drove Woody crazy when the 12th-ranked Stanford Indians, consisting of one rifle-armed Jim Plunkett and a supporting cast of California lulus, beat top-ranked Ohio State in the 1971 Rose Bowl. It was the college equivalent of the Baltimore Colts' losing to Joe Namath in 1969--humiliation! So crazy mad was Woody that he failed to see what was unfolding in the top ranks of the college game: Faster defensive ends to contain sweeps had reduced the value of his "three yards and a cloud of dust" ground attack.
Enter the Internet economy. The Internet inspires young talent, cracks open ideas, speeds up the velocity of capital, attacks cost, lowers price, suppresses inflation and makes markets smarter--yes, the stock market, too! It sends learning rates (both individual and corporate) shooting through the knee of the curve like an F-16 taking off. Against all this, the old idea of "one quarter and a cloud of profit" is of much less value.
What is the fair value of the Dow? Relax. The market has it right.>>
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