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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: Shtirlitz who wrote (31702)	6/3/2000 2:14:00 PM
From: Paul Moerman	Read Replies (2) \| Respond to of 50167

Excellent post - I've been thinking along these lines and couldn't have articulated it any better. I realize the end of rising interest rates will be a good thing by itself, although I'd be surprised if upcoming economic data didn't support another quarter or half percent increase. Regardless, I agree that the resultant slowing of the economy doesn't appear to be fully priced into the market. I think it's likely we will see lower lows this summer before this correction is finished. Still, it was sure nice to have the upside we did this past week - gives some relief to people extended on margin! Regards to Ike and all others on the thread!

To: Shtirlitz who wrote (31702)	6/4/2000 8:14:00 AM
From: GROUND ZERO™	Read Replies (2) \| Respond to of 50167

You present a very sound fundamental argument... I've also noticed that the bonds may have topped this past Friday, the CRB Index is still breaking out to the upside, and the US Dollar is still moving lower... I don't know how stocks can move higher in such an environment... I took my long profits in the SP's and new short positions in the bonds and in the DOW Index on Friday and I think we could see a resumption of the selling early next week... I could be wrong, but I have to agree with your basic tenent..... GZ

To: Shtirlitz who wrote (31702)	6/4/2000 11:32:00 AM
From: IQBAL LATIF	Read Replies (3) \| Respond to of 50167

<<We just started seeing the effects of the first few rate hikes. The larger hikes didn't work their way through yet. Everyone is happy that the economy is slowing down, but its not something to be particularly happy about. Auto sales are down! Retail sales are down! Hooray!. Not really. Slowdown in sales affects a lot of suppliers, including semiconductors. If the growth is slowing, the premiums for growth should come down.>> The economy needs to cool down to 3.5% rate that is accepted as sustainable from unsustainable 5% rate of last year and present 4.5%. At 3.9% or below that level of unemployment, the fed believes that economy is on the path of self destruction. What historically use to be considered as safe level of 5% unemployment have been breached for far too long that now credibility has been revised down to 4.5% figure as something sustainable. The nation produces 9 trillion $ of out put growth at 5% per annum adds 450 billion $ to the nations output whereas a lower growth rate of 3.5% would adds 305 billion to output, later is considered to be a level which is very sustainable. Now distribution of that output can be very uneven, sectors like auto and housing or even old traditional sectors represented by likes PG or JNJ even some bkx do not really trade on a tear away valuations as their future share of this output can be far lower than the sectors that are going to lead like communications wireless and information technology a more polite name for internet mania. The reason is due to uneven nature of command of corporate on nations output some corporate command an higher premium others do not. I once wrote about a company symbol as PHM trades at 4-5 time earnings and is nation premium house builder why this stock does not trade at 50 times P/E whereas CSCO with all its uncertainties command that multiple, it is the concept of PEG that derives some these leading companies. Like top bonds carry premiums and top property locations trade at premiums similarly stocks that hold promise for future trade at a huge premium. The level of 3.5% growth gives enough of boast to the future trends of these leading stocks, they cannot sustain a huge recession or a hard landing but a slower economy associated with productivity that offsets wage pressures is an ideal climate what we lay terms call as non-inflationary growth trajectory, we think that Friday rally was precursor of what market pundits believe a virtuous cycle and trajectory of non-inflationary growth. One point in time XRX EK AMGN MO even TMX had all commanded these lofty pricing and this is a constant phenomenon, leaders are crowned and dethroned at a rate that signals to me atleast the ability of the market to ditch hype. If one looks at DOT or IIX much as it was over hyped at 1300 plus, the time to cut it into half took only 60 sessions, without any impact on the overall economy, these sky high valuations does help a lot of egos to claim victory on paper but rarely they get translated in actual cash, it remains as paper and the small part we take it out is spent on tangible assets which fed is always worried about the asset inflation part of it. The missing 2 trillion $'s from economy as a result of this latest sell off will only help to cool super aggregate unsustainable non-durable demand. I would tend to disagree on the assumption that valuations have reached the same stratospheric levels, if you just look at BTK IIX DOT or even SOX you would see that we are at levels of last year pre-rally period with 4 quarters of robust earnings behind or built in these stocks. The ability of market to correct steeply build in the earnings and prepare for future speculative run is the whole game, on selling side it does go and sell below the sensible levels or buying side we overextend too, but one thing I always keep on my radar is the disproportionate contribution of various individual corporate to nations wealth. For me ability of MSFT to contribute to output or NOK or T or MFNX is very different from KM or F or GM, the global nature and global constituency of some of these techs makes sometime the playing field very different for players within S7P or even DOW, some companies have an encatchment area of 100 million US citizens others have a potential encatchment area of 2 billion people on face of this earth for me I pay a premium for the ones that has higher potential and larger encatchment area. Premiums in my opinion are for models, take an example of AMAZON all my friends are buying most of their books or movies from Amazon even sitting in Europe, the cycle is strange I order it and get it delivered by DHL in less than four days without hassle and far more cheaper, now I assume if I am right this .7% of retail sale on e-net has a potential to increase to atleast 10 % in five years or so, so for me a premium is well in offing, same for AOL- TWX merger I would pay that premium as old economy and new economy combined stocks has a growth potential of 25%, in my opinion TWX is a real company per see AOL is a virtual company but the intercourse of two make a huge different animal and synergies drawn from it can be mammoth. I do concede that within market we have a 1-2.5 trillion $ speculative bubble that keeps changing and rotating, overall the market is governed by one factor and I have talked about it a lot that of corporate revenues, SP 500 corporate revs are around 480 billion $, if you take out the 100 strong PEG companies where huge premiums are every day occurrence the other 340-380 stocks has an average P/E of less than 20. When these huge PEG companies sell off at 40 level P/E the strong buying comes in, to expect that AOL or QCOM or MFNX or GLX trade at same multiples as KM is far stretched an analogy, the infra structure and licensing arrangement of some of these companies although they are not still making cash are worth more than what some of them were trading when GBLX hit 22$, one could have purchased the entire company whose potential to throw money out of assets could be phenomenal in few years time. The problem is that we are at a juncture where infrastructure expenditure is going out but the revenues have not started coming in, will anyone who has spent of millions building a business sell its franchise that promises huge growth exponentially cheaply before even it is finished, that is the key problem stock market ability to punish lack of earnings and its unnerving ability to overlook asset base ready to be converted into cash flow is the cause of many of these freakish definitions of overvaluations. Now in a market correction like we saw in last few months these high PEG's were crucified. Initially market took them to new highs in Jan and Feb justifying its action based on interest rates would not hurt these techs as they had no loans they bought Comp and sold DOW, we thought that this is not the case since these stocks are valued on DCF model they will be impacted hard, we sold Comp and bought the DOW. Once market came around the idea that rising interest rates would hurt these stocks and unsustainable nature of DCF model based valuations they sold the comp IIX DOT and went into old economy, that indiscriminate selling took the hype out of economy and we saw Comp trailing at 3050 from 5000plus. Now at 5000 plus and rising interest rates with booming economy and asset inflation we could have moved into that boom bust cycle, by jawboning AG brought the hype down, toned the levels of Comp and brought asset inflation under control. The quality of move from 3050 to 3800 is well balanced and have much more broader participation, now winners are making waves but stocks that have no future are still languishing this rally has left many a boats still not all boats are rising. If you look at Comp sell off and DOW reversal the second phase of this correction after an initial DOW sell off to 9700, in rising interest rate environment anticipating slow down they bought' old economy' they bought DRGs BKX and DOW from lows of 43000 on brks or 9700 on DOW. Someone had asked me than that what is the justification of buying bkx in rising interest rates. I had posted on this thread a P/E chart that showed some of these financials at 650-725 were trading at a multiple of 14-22 with a growth prospect of 15% to 30%. The market had shifted money when Comp was making new highs out of valuation stocks like GT HON BKx and backed speculative side of market. The gambling money or bubble money had moved into techs help doubling of prices. That was giving enough kick to everyone once jolt came after that infamous article where we tumbled badly the money either was lost on paper that is the missing 2 trillion but rest of it found its way to old economy as a flight to security measure. Economy is slowing down from 3.9% unemployment that 30 years low to I would be happy to 4.5%, the retail sales are down from 10 year highs not from a bottoming area, in a super charged economy that is a best bet and what else market was cut to size and 11000 on Dow taken out quite some time back is still not breached and Comp is corrected by plus 39%, now from bottom we can say that we have moved up by 19% but from 5000 plus to 3000 we can see a retracement of 40-60% of the move down before we see the close of gap to which the market opened on Friday. That is for me right here I need few closes above that 3800 level and I would think that 4200 is doable, for me it is the Asia Pacific demand of semis and catching up of European demand that interests me, this April sale of 15 billion in my opinion will hit 18-19 billion next year, now in this model the Us alone is not the oasis of stability it is the global recovery of sorts and most of this growth is not commodity fed growth, I would like to see the manufacturing side keep weakening and intelligent sectors of economy keep booming, this knowledge economy has new frontiers I am sitting at the periphery and know very little, the little I understand makes me bullish but naturally everyone is entitled to own interpretations. As always my best of regards and lets keep thinking it is out of these kind of extempore exchanges that shining spark of truths appears..