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Non-Tech : Tulipomania Blowoff Contest: Why and When will it end? -- Ignore unavailable to you. Want to Upgrade?

To: Sir Auric Goldfinger who wrote (2353)	12/28/1999 8:23:00 AM
From: long-gone	Respond to of 3543

<<Radioactive gold?>> Guess it depends on the level of problem.

To: Sir Auric Goldfinger who wrote (2353)	12/28/1999 9:18:00 PM
From: Mad2	Read Replies (1) \| Respond to of 3543

This appeared in Financial Planning Nov 1st.....about the time the NASDAQ started it's moon shot......apparantly no one read it or cares. BTW after following up on hb and Kerry's discussion on margin debt I'm tempted to either quit reading or take all my funds out of equities. I'm not sure if I can trust the banks either;?) Mad2 Copyright 1999 Securities Data Publishing Financial Planning November 01, 1999 LENGTH: 793 words HEADLINE: Getting A Clue; New exchange circuit-breaker levels could snatch growth investors' wealth. BYLINE: Robert R. Kneisley BODY: As financial consultants, we are all acquainted with clients and prospects who invest in speculative stocks on the Internet using all manner of "black box" techniques and momentum indicators. And doing so has worked! (I know a cardiologist who actually gave up his practice two years ago because it was "so easy to make money investing.") We must also remember that there are millions of very responsible long-term investors presently invested in common stocks and mutual funds for all the right reasons. Interestingly, both groups are at risk from unusual sources. The signs of speculative excesses are quite obvious; stocks now represent 45% of all U.S. household assets. Additionally, margin debt has skyrocketed to an all-time high and now represents 2.02% of our $9 trillion gross domestic product. History may well record that our present "new era" for the markets represents a period in history comprised of mega-cap stocks with price-to-earnings ratios ranging from 60:1 to 100:1. These are the darling stocks driving the Standard & Poor's 500 index. We know that as the S&P 500 grows in value, so grows the myriad of index fundsproviding added fuel for margin loans. Speaking of margin loans, while the magnitude of current speculation seems to somehow escape the masses, it has not escaped the watchful eye of the Fed. Their model of June 25, 1999, ranked stock market valuation at the highest level in 20 years. Unfortunately, we all know that there has not been a plethora of media focus on these unsettling facts. The average investor doesn't seem to have a clue. As in the Lewis Carroll poem, "Jabberwocky" in Through the Looking Glass, one day the awesome bandersnatch could swoop down upon unwary investors "with eyes that flash and claws that catch." All three investor groupsgrowth stock, growth fund and speculatorcould be seriously affected by any slowdown or lack of trading ability. In that regard, it appears that the New York Stock Exchange circuit-breaker levels adopted on April 15, 1998, represent just such a predicament. Worse yet, growth stock and growth fund investors can also be "bandersnatched" by the phenomenon known as the "small investor syndrome." As advisers, we have a duty to let our clients know that serious investors in growth stocks, as well as growth mutual funds, may well suffer alongside speculators in the event of a major market decline. Few investors seem to understand that the NYSE revised the circuit-breaker rules on July 1, 1999. As you know, the levels are now set by percentages, which are then converted to points. The percentages represent whopping stock market declines of 10%, 20% and 30%! As of third-quarter 1999, the current point levels are: * Decline of 1,050 points = trading halt of one hour if decline occurs before 2 p.m. * Decline of 2,150 points = trading halt of two hours if decline occurs before 1 p.m. * Decline of 3,200 points = trading halted for remainder of the day. Given the market's recent levels, "trading collars," which restrict index arbitrage trading, will be triggered when the Dow Jones Industrial Average moves 210 points. But that's a whole different issue. Please remember, our concern centers around the fact that when the exchange is closed we could all be at the mercy of fear-driven emotion. Like so many fleas in a hurricane, millions of investors will suddenly re-evaluate the risk/reward levels and opt to cut bait. After a trading recess of an hour or two, at what level might our investments trade when the exchange resumes? This is a very sobering thought, and worth serious consideration by those of us earning our livelihoods caring for clients' success. It does not take a mathematician to imagine the trillions of dollars in losses that can occur when the next bear market arrives. It seems timely to advise our clients to use institutional, individually managed accounts in an effort to deflect the herd mentality and potential for closed markets that can invite the Jabberwocky to shred growth stocks and growth stock funds in a declining market. In such scenarios, it appears that active management can indeed supplant asset allocation. As a matter of fact, it may be the only solution. For those who do not have sufficient assets to qualify for an individually managed account, you might wish to consider the use of tactical asset allocation managers who can micromanage growth stock funds. Such asset allocation attempts to exchange growth funds for money market funds when the market is perceived to be overvalued. The approach has benefited many of our clients. Both alternatives could help your growth investors "keep their powder dry" to optimize the next market cycle. After all, isn't that our shared goal? LANGUAGE: ENGLISH LOAD-DATE: November 1, 1999