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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Earlie who wrote (70862)	11/22/1999 1:19:00 PM
From: Sid Turtlman	Read Replies (3) \| Respond to of 132070

Earlie: An interesting factoid to toss in your mix is this from the venerable market letter "Market Logic" (800-442-9000). One of its indicators is a 20 week m.a. of the ratio of stock offerings (IPOs and additional financings) to GDP. Over the decades it has ranged from near 0% through most of the 1970's and some of the 1980's, to the 2% or so level that it has been bouncing around for the last half of the 1990's. This week's figure hit an all time high of 2.87%. There are some implications from this: 1. If one assumes that most of the money raised in an IPO or additional financing gets spent over the subsequent year or two, then the multiplier effect of this spending has pretty much accounted for all the growth in the economy in recent years. Computers, productivity, the New Paradigm? Forget 'em, they made no difference at all, except to the extent that they made investors more bullish. The reason unemployment isn't still 8+% is that the Fed pumps the money supply, investors toss that into equities, companies trade in paper for cash, spend it, and then the recipients of that spending buy things, etc. That is all you need to know. That is the true wealth effect of a hot stock market, more so than people feeling rich and buying a new car. 2. Anything, whether economic or psychological, that hurts the market enough to stall out the stock offerings for an extended period, will have a big negative effect on the economy. 3. The stock offering boom has created immense capacity in the form of more companies, and bigger ones, all raring to compete. Many of them are unprofitable, but people don't mind because they still have plenty of cash and can always raise more. Others are profitable and doing well, mostly because of levels of demand that have been stimulated by the free spending recipients of stock market largess. If the IPO/offerings money had all been going into old economy type companies, everyone would notice a glut of steel mills, etc., being constructed. Just because the excess capacity isn't physically visible doesn't mean it isn't there. Accordingly, when things do slow down, the big surprise will be how crushed margins get, as too many players try to scrape after fewer dollars.