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Strategies & Market Trends : ahhaha's ahs -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (1501)	3/12/2001 1:26:51 PM
From: GraceZ	Read Replies (2) \| Respond to of 24758

Stock prices are based more on the rational expectations for earnings growth minus inflation, rather than the GNP. You can have a growing GNP while you have shrinking profit margins. Add in inflation to reduce the effective yield on investments and you don't have a good environment for stocks. Investment back into productive assets comes from profits. During the bubble, investment money came from loose monetary policy coupled with irrational expectations for future profits in dubious business plans. When it became painfully obvious that profits were on an ever distant horizon the bubble burst. Take a look at the revenue growth for AKAM, then look at the rate of growth for their losses. For the FY ended 12/00, revenues totalled $89.8M, up from $4M. Net loss applicable to Common and before extra. item totalled $885.8M, up from $56.4M. It's breathtaking. Over and over, every "new economy" stock I researched had this going on to some extent or another. There is still a lot of loose money and now the money has been in flight back to the old economy rust buckets where it doesn't have any business going either. You are talking about companies with 3% revenue growth with looming inflation to cut at profit margins and the very real possibility of recession. But we don't need negative GNP to create a terrible investment prospects, just slowing growth, shrinking profits and a little inflation and that will reduce the effective yield on capital investments to zero.