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To: Taki who wrote (214)	7/30/2000 1:02:29 AM
From: EL KABONG!!!	Read Replies (2) \| Respond to of 1426

Taki, I strongly disagree with your premise that MMs caused the March/April decline. I think they didn't even so much as contribute to the problem. If anything, many of them may have lost money just as easily as the individual investor did. The problem was clear then (in March) and is just as clear now. Stock valuations were (and in many cases still are) unrealistically optimistic. To borrow Alan Greenspan's phrase, call it "irrational exuberance". Several factors came together all at once and killed the market enthusiasm. First of all, people were warned by the Fed that interest rates would rise. This warning had an immediate effect upon the so called "new economy" stocks, because these stocks (more so than any other group) were heavily dependant upon outside financing, and as a group, they could ill afford increased interest rates. Their stock prices started to plummet almost immediately. Secondly, you had (and still have in some cases) enormous amounts of stocks in individual accounts that were leveraged to the absolute maximums permitted. When these new economy stocks started to fall, people had to sell to avoid inevitable margin calls. As "weak hands" saw the rapid decline, they too sold, which exerted even more downward pressure, which meant that even more of the folks with margin accounts had to sell (or face calls). This created a downward spiral, rather benign at first, and very hectic over a two or three day period in March/April. As new economy stocks fell, old economy stocks were taken out as well. In some cases old economy stocks were sold to meet margin calls. In other cases, people left simply because without new economy companies as customers, it was feared that old economy stocks would suffer revenues and earnings shortfalls. So we witnessed a decline in many old economy stocks as well. And then there were companies that had their own specific problems. In particular, one major problem was failing to meet whisper numbers, or just plain posting rather dismal quarterly numbers (for example, P&G) and projections. When you combine all of these problems with the fact that stocks were at an all time high, and many companies simply could not live up to the earnings expectations, a correction and/or crash was inevitable. In my opinion, many stocks are still way overpriced. Remember, as an investor what you are buying when you purchase a company's stock is future earnings. If I can buy a dollar's worth of earnings from one company for say $20, why would I be willing to buy that same dollar's worth of earnings from another company for say $100 or $200 or $500? If you don't recognize what I'm talking about, the more common term is P/E. And also remember, in order to have a P/E, there must be earnings. Many of these companies that have suffered (so far) irreversible price declines have no earnings whatsoever (witness AMZN). Since so many people were burned back in March/April, I don't look for "irrational exuberance" to return any time soon. It may happen. Never underestimate the greed of some people. But I think most folks now realize that these prices were simply unsustainable. KJC