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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Jack T. Pearson who wrote (40551)	2/17/2000 11:02:00 PM
From: Benkea	Read Replies (1) \| Respond to of 99985

Thanks Jack. So what you're saying is this is a "new era"? <g>

To: Jack T. Pearson who wrote (40551)	2/17/2000 11:27:00 PM
From: Saulamanca	Respond to of 99985

Jack, What you say makes perfect sense. The bears say that the divergences in the market that we are seeing have always ended badly makes sense also. Shorting the high flyers has been a recipe for disaster and I`m sure that has added fuel to many of incredible runs we`ve seen. I`m not smart enough to know if this "New Economy" stuff is for real or if it`s just smoke and mirrors. But as long as the Nasdaq stays strong and I can find chart patterns that I can buy, I`ve got to be bullish. --Jim

To: Jack T. Pearson who wrote (40551)	2/17/2000 11:36:00 PM
From: Kailash	Read Replies (1) \| Respond to of 99985

One distinction between the new economy and the old economy that is often left out of the discussion is that the old economy makes money and the new doesn't, comparatively speaking (and often absolutely too). You still hear people say they buy the new economy technology stocks because of future earnings, but this seems pretty implausible given today's valuations. The internet mania in retail business is already on the vane; the B2B is next in line. The fast money has moved on to more intangible sectors such as biotech (who knows the potential genetic engineering?) and now superconductors. Yet if the old economy begins to sputter, the new economy will be like Wily Coyote stuck in the air, not realizing for a moment there is nothing to support it. I wonder if people will have the courage to keep pouring money into the speculative techs even as the blue chips tank. I plan on shorting into the long weekend. Kailash

To: Jack T. Pearson who wrote (40551)	2/17/2000 11:39:00 PM
From: Jacob Snyder	Read Replies (2) \| Respond to of 99985

good post, Jack: I think it summarizes why so many investors are selling stocks with single-digit PEs, and buying companies with triple-digit PEs (or no E). My main problem with that argument is that everyone now believes it. The process of buying growth stocks (or concept stocks) and selling value stocks, has reached a point of absurdity. Let me give you an example of 2 companies that I have been following for years: CMH is a very boring company. It's a small cap, family run, mobile home manufacturer. Quarter after quarter, for the last 20 years, it has turned in EPS increases of 14-18%. They have a pristine balance sheet, and buy back shares every quarter. You can buy the stock now for a single-digit PE. CSCO is an exciting company. It hasn't been around for 20 years, and its industry gets transformed every 6 months, so guesses about the future are much less certain. But, I would agrea with you if you told me that CSCO's future EPS increases will be 3 times higher than for CMH. You can buy the stock now for a triple-digit PE. If I buy CSCO, instead of CMH, then I am paying far more for present earnings, and also far more for future earnings. It is reasonable to do that, to a certain extent. But the market, controlled by momentum "investors", has gone far past that point. I would be willing to buy CSCO if it was available at a PE of 3 times that of CMH. I'd even be willing to do that using 12-month forward earnings in the PE calculation. That is reasonable, and is justified by the companies' future prospects. But the differential in value vs. growth companies' PEs, in today's market, is not reasonable. As I say, it has reached a point of absurdity. The market always overshoots, in both directions, and that is what is happening now. And, by the way, if you don't think rising interest rates are going to affect the stock of companies with triple-digit PEs, then you are ignoring (or ignorant of) all past economic history.

To: Jack T. Pearson who wrote (40551)	2/18/2000 1:52:00 AM
From: Michael Watkins	Read Replies (3) \| Respond to of 99985

Jack, Fundamentally, the higher growth rate in the "new economy" is due to the high demand for productivity improvement and cost reduction available from new technologies. There's a limit to how much technology can do to eek productivity gains out of the system. Productivity gains don't have to stop or reverse for them to be a concern to the powers that be... the mere slowing of productivity growth can be an alarm itself. I'm in the IT biz. I see productivity enhancing solutions all over the place. But labour remains a big cost and technology is not impacting labour as much as anyone may think. The "old economy" is between a rock and a hard spot. If they want to survive, they have to adopt more efficient technology and processes. The most cost-effective way to do that is buy them from the new economy. The cost of debt is going up because of rising interest rates, but the cost on not investing is much higher--those who do invest will gobble up the market share of those who don't. Improving the buying and selling of services again has a finite limit to it. Have a tour through some large corporations and look at all the places where there are inefficiencies, and ask yourself how much an ARBA or CMNT is going to help in these areas. What percentage? Its pretty small in the grand scheme of things. The things that make the world go round run on the backs of people and will for some time. People are a funny thing, they don't change that fast and can only move so fast. reduce the need to hire new employees Please explain how this will happen. I am seeing no staffing reductions at my clients, in fact, quite the opposite. They are hiring more and spending more on them. The jobless numbers are testimony to this reality. If productivity is high enough, prices can even drop while interest rates go up Goods that are produced may be produced at marginally more efficient costs thanks to the internet, but lets get real here. Just in time manufacturing has been in existance for a long time. EDI networks make this possible. Internet replacements of EDI technology make it more cost effective for smaller organizations to participate in buying networks, but they don't make the machine that stamps the bumpers or the Barbie (tm) doll more efficient at all. How much of what you spend your money on is a hard good vs a service? My neighbours that are margined to the hilt, bought houses four sizes too big for them, have more cars than people -- they will be paying much much more for these products as rates climb. but the cost on not investing is much higher--those who do invest will gobble up the market share of those who don't. A good point, but the dream is being funded by bagholders... stocks being bid up to incredible valuations based on nothing more than the promise of a dream. This is emotion to the extreme, and when the tide of emotion turns, things will fall apart. The insiders make their money; some folks will make some off of it; and a whole generation of "investors" will know what it feels like to hold the "bag" as things tank. if they tank. And if they tank, it will make Bre*X look like a dime store robbery... But I'm not bearish. Just realistic.