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To: Chip McVickar who wrote (2207)	11/10/1999 12:01:00 AM
From: Hawkmoon	Read Replies (3) \| Respond to of 3536

The best single measure of the impact of the stockmarket on America's economy is private-sector net saving—the gap between the disposable income of households and firms, and their spending on consumption and investment. I just get a kick out of these political statements by European economists. They gripe about lofty heights of the US stock market and the lack of savings by Americans. Yet they continually dismiss the fact that Americans are saving in ever greater quantities, as measured by the trillions of dollars that are invested in IRAs, 401Ks, pension funds... etc, etc, etc. This issue is that Americans are just not saving in the traditional manner they are used to, namely cash in an interest bearing savings account or CD. They are putting their money to work for the long term in equities and deriving greater returns. Yes... the boom will eventually end, but it will probably be the result of a demographic or crisis related event(world war.. etc), and evenyone else will suffer just as terribly. Just my .02 worth. Thanks for the article Chip... Regards, Ron

To: Chip McVickar who wrote (2207)	11/10/1999 9:23:00 AM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 3536

Hi Chip, to start with I agree with Ron' sentiment, there is a certain amount of sour grapes in certain European circles when it comes to analyzing US economic conditions. The study focuses on three imbalances: an overvalued stockmarket, the collapse in private-sector saving and an alarming increase in debt. I'll start with the easiest one first, private-sector saving. IMO they are using bad statistics. The -5.5% number they refer to is something we have discussed before. These numbers are strongly distorted downward in a period of rising equity prices. As we have discussed this is due to what many believe is questionable methodology. Capital gains are excluded but capital gains are not. So if someone saves $5,000 from income, sells stock for a $30,000 gain and pays a $6,000 capital gains tax his net savings would be calculated as -$1,000. I can understand the reasons for excluding capital gains from savings statistics but then capital gains taxes should be excluded as well. Economists who have analyzed the statistics and neutralized the methodology error have said that the core savings rate has remained very close to trend in the US, 6-8%. As Ron points out, there is demonstrably a huge flood of new cash that continues to come into the US markets and has been for years. If the savings rate is negative where is the money coming from? Since the central thesis of their study appears to revolve around low private sector savings and the stats they use are questionable I find it difficult to become to concerned about their forecast of prolonged sluggish economic conditions. Their first point is that the US market is overvalued. This is of course an entirely subjective statement. My own opinion is that on balance the US market is not overvalued. Much of the US market is quite reasonably priced. The questions regarding high US market valuations come, imo, from three high priced sectors. The first is tech stocks; Cisco, Qualcom (sp?) etc. The growth rates in the technology sectors is awesome and all signs on a global basis is that these growth rates will be maintained for the foreseeable future. While valuations in this sector are high they are not out of line with the growth rates. The second sector is large 'index' blue chips such as GE and AIG. These have been a major beneficiary of a lot of the money flowing into 401ks which finds its way into index funds. These stocks are expensive but they have delivered growth. If overvalued it is probably on the order of fractionally, not on the order of multiples. The final sector is internet content and internet consumer oriented companies such as Amazon. This is one sector that I think is badly out of line. The sector is getting very crowded with an increasing difficulty for companies trying to separate from the pack. Costs, despite conventional wisdom, are pretty high and this will make it difficult to translate high revenue growth into geometric profit growth. This sector needs to be shaken out. But one sector, no matter how high profile, does not translate into an entire market being overvalued. In fact this market has done a pretty good job of rotation. Stocks and sectors that disappoint on growth expectations get punished pretty quickly. Personally I think the overall market is in pretty good shape. Their last point is an increase in debt. I have to admit I have not been following private sector debt that closely and will do a bit of research on this before responding. But since I disagree with the other two supports of their thesis I doubt this alone would get me to agree with their forecast. Henry