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Pastimes : All Clowns Must Be Destroyed -- Ignore unavailable to you. Want to Upgrade?

To: Oblomov who wrote (13177)	2/27/2000 2:25:00 PM
From: BGR	Read Replies (1) \| Respond to of 42523

Andrew, In a market where majority of investors are indexing, your model holds. The present market is not one such, simply because your model fails the reality test: according to it MSFT should have been a trillion dollar company by now. It is not, which shows that majority of investors are allocating money independent of index funds. Since the market is still narowing, blame them and not the poor indexers - at least not yet! :-) Now, why, exactly, is the market narrowing? Catchphrase notwithstanding, it is indeed true that a special section of the economy - those that produce the technology and not merely consume it - are growing at a much faster clip on average as compared to the economy, and some of these are gorwing at a spectacular rate on an individual basis. Isn't this an extremely common phenomena in a winner take all scenerio? Investors are simply reacting to this reality. Why, pray tell me, should one invest in Sara Lee over JDS Uniphase, given their relative growth rates? If you are opposed to casting this as a new vs. old debate, so be it; but the facts remain the same. As for risk, private sector loan doesn't tell the whole story, as there is a huge improvement on the front in the public sector. As traditional economics goes, if consumers (including businesses) are rational, they should expect tax cuts given the budget surplus, so they should borrow now to spend the tax refunds of the future. Similarly, if the Govt. borrows less, that's an increase in demand for private sector debt - or the excess capital goes to the stock market. Given MM II, a firm's debt-to-equity ratio has no effect on its valuation. So, isn't it rational to take on more debt at this point? The market, Andrew, is acting in a perfectly rational manner as far as traditional economics goes. That is the way I see it anyway. Please point out any errors in my understadning. -BGR.