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To: Earlie who wrote (656)	6/25/2000 8:03:00 AM
From: re3	Read Replies (3) \| Respond to of 436258

from the toronto star today.. Old-economy stocks may be set to rally The terms old economy and new economy are now well accepted as part of the current lingo used to describe two distinct classes of stocks. These new buzz words rank up there with clicks and bricks, e-biz and e-tailing. But I have always maintained that when a new investment era becomes obvious to all investors, we are closer to the end of the era than we are to a new beginning, and, despite the current fascination, the transition from old- to new-economy stocks is really not a new event. The change actually began almost 20 years ago, after interest rates and commodities spiked in 1981. After commodities soared, and then collapsed, capital started moving from the old economy - oil, metal, steel, retail and banking stocks - into the new-economy stocks that benefit not from inflation but disinflation - technology hardware, semi-conductor, telecom, Internet and biotechnology stocks. Most old-economy companies - General Motors Corp., for example - are old, having been in business for most of the 20th century. Most new-economy companies - Microsoft Corp., just for one, but not International Business Machines Corp., for instance - are very young, in only their late 20s. The shift of wealth from old to new economy accelerated in the 1990s, and by mid-1999 the movement took on a herd-like mentality that continued into the first quarter of 2000. The bullish stampede into technology-related stocks ended with most of the group running up into sharp, fast spike tops in March, 2000. The commodity-related spikes of 1981 were similar, and eventually led to collapse. This rush by investors from old- to new-economy stocks can seen by looking at a plot of the New York Stock Exchange advance/decline line. Every day the NYSE publishes the total number of advancing stocks and the total number of declining stocks. An advance/decline plot is calculated by subtracting the daily declining stocks from the daily advancing stocks. Take the resulting number and add it to the result you got the previous day. As these results accumulate over time, look for the pattern. Our chart this week shows the daily closes of the broad S&P 500 index, and the advance/decline line. Initially the advance/decline line trended with the stock market. The point A represents the low set in the bear market of October, 1998, and the point B represents the intermediate market top of July, 1999. The two plots diverge over the next 12 months, with the S&P 500 rising from B and the advance/decline line dropping from B to a low point at C. This means that the S&P 500 was rising even though the majority of stocks were falling. In other words most of the investment dollars were going into a minority of stocks. In terms of capitalization or size, markets contain more old-economy, large-cap stocks than new-economy, large-cap stocks. The result was that eager investment dollars crowded into a handful of technology stocks, bloating their size. Cisco Systems Inc. and Microsoft Corp. suddenly became the largest corporations in the world in terms of market capitalization. Note that after the technology crash in March, 2000, the NYSE advance/decline broke up through a downward trendline. This is a signal that capital was moving back to the broader old-economy stocks that account for so much of the market. This is an early change, and I am counting on the movement to continue through the summer months to support my theme of a summer rally. The beaten-up technology stocks should also rally through summer and give us some extra boost in the major indices. Some of the group could put on quite a show of strength and generate a new round of euphoria among the technology bugs. But I would use any rally in the technology stocks to exit the group.