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.

Technology Stocks : Amazon.com, Inc. (AMZN) -- Ignore unavailable to you. Want to Upgrade?

To: GST who wrote (81005)	10/18/1999 2:34:00 AM
From: Bill Harmond	Read Replies (2) \| Respond to of 164684

>>The key question is whether the recent decline in equity premiums is permanent or temporary. If the decline is permanent, portfolio risk managers need not spend much time revisiting a history that is unlikely to repeat itself. But if it proves temporary, portfolio risk managers could find that they are underestimating the credit risk of individual loans based on the market value of assets and overestimating the benefits of portfolio diversification. That paragraph is the key to the whole speech. He DIDN'T say equities are overvalued. He said that we must be prepared if they are and a panic ensues. The banking/brokerage industry has already taken measures to protect itself from loan losses caused by a panic in Internet issues by dramatically raising margin requirements for stocks in the sector at the beginning of 1999. To my knowledge those stiff requirements are still in effect.

To: GST who wrote (81005)	10/18/1999 2:50:00 AM
From: Randy Ellingson	Read Replies (2) \| Respond to of 164684

GST- Almost always this has been the right judgment. However, the decline in recent years in the equity premium--the margin by which the implied rate of discount on common stock exceeds the riskless rate of interest--should prompt careful consideration of the robustness of our portfolio risk-management models in the event this judgment proves wrong. >>THE ABOVE PARAGRAPH IS KEY: HE CLEARLY SAYS HERE THAT THE STOCKS ARE OVERPRICED. HE IS SAYING FLAT OUT THAT HE DOES NOT BELIEVE THE MARKET HAS PRICED IN THE RISKS OF OWNING STOCKS.<< Not! His wording is such that "this judgement may prove wrong"; he does not opine that it is wrong. The entire speech, which I realize you have read as well, discusses risks, risk premiums, and the reduced risak premiums which have accompanied improved information accesibility. Naturally you attribute his speech to his beliefs that the current stock market valuations are inappropriately high. He would have a tough time writing a book on why MSFT stock price is too high; he would have a tougher time writing the same book on Yahoo. Randy