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

To: James F. Hopkins who wrote (62826)	11/19/2000 8:14:32 PM
From: James F. Hopkins	Respond to of 99985

TYPO ..big one to hit 2007 to 2010..

To: James F. Hopkins who wrote (62826)	11/19/2000 8:40:54 PM
From: John Madarasz	Read Replies (1) \| Respond to of 99985

Hi Captain Jim... It's great to see you posting here again. Your social security comments, among others, got me to thinking(like they usually do <g>) about an old article I read... so I went back on a search and found it from Jan. 20, 2000. It's as relative today as it was 11 months ago. Zaiteku, American Style, or Everyone's A Closed-End Mutual Fund Now As Mark Twain said (or someone said he said), history might not repeat itself, but it does rhyme. Back in the late 1980s, when it was the Japanese stock market's turn to "be different this time," Japanese nonfinancial corporations were augmenting their earnings from operations by playing the stock market. Why not? The Bank of Japan was hemorrhaging cheap credit, enabling these corporations to pick up shares, in effect, on inexpensive margin. The BOJ's cheap credit increased the demand for Japanese shares, driving up the prices of these shares, the increased prices of previously-purchased shares by Japanese corporations boosted their profits, which, in turn, helped rationalize stratospheric Japanese P/E ratios. In effect, Japanese corporations were leveraged closed-end mutual funds. Look in the past and you will see the future. Or look at the front page of today's Wall Street Journal and the Lex Comment in today's Financial Times and you will see that American corporations today are doing what Japanese corporations were doing 12 years ago. Stock portfolio gains helped Microsoft and Intel beat their Street estimates. SmithKline Beecham has a venture capital fund. Delta Airlines boosted its earnings from the sale of its stake in priceline.com (I wonder when Delta sold in that priceline.com as of January 19 was down 62.2% from its 52-week high set back at the end of April 1999.) These corporations may not have borrowed specifically for the purpose of buying equity in other companies, but funds are fungible. The borrowing that they did to buy capital equipment or carry inventories might have come from retained earnings had they not used those earnings to buy stock in other companies. I'm certainly not opposed to corporations dabbling in the stock or venture capital markets. That's between senior management and the stockholders. All I'm trying to point out is that the Fed's provision of cheap credit is stoking stock prices in a variety of ways, American-style zaiteku, being the latest example. Ten years ago, it was said that America was in danger of becoming a nation of hamburger flippers. Wrong! More like a nation of stock flippers. ntrs.com Hope all is well. Beeuteeful okra plants BTW...( my wife is from San Antone)<gg> Regards, John M