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To: 16yearcycle who wrote (44261)	3/21/2001 7:23:01 PM
From: Gottfried	Respond to of 70976

Eugene, we don't need to hit 20% undervalued because this is a slow, grinding decline. The '98 undershoot was so large because it was rapid. [engineering reasoning] Gottfried

To: 16yearcycle who wrote (44261)	3/21/2001 7:53:14 PM
From: brunn	Read Replies (1) \| Respond to of 70976

The problem with using the model is that it is based on forward earnings. We now know what earnings would be achieved going forward from October 1998. Forward earnings for 2001 is another matter. Although earnings estimates for tech earnings have fallen off a cliff, they have held rather firm for the remainder of the economy and may be due for a fall.

To: 16yearcycle who wrote (44261)	3/21/2001 8:14:32 PM
From: Jacob Snyder	Read Replies (1) \| Respond to of 70976

RE: fair value and sentiment: 1. I like that valuation model, and I use it. However: 2 of the three variables are known facts (Treasury yield, and current stock prices), while the third variable (forward 12M earnings) is a huge unknown. And, in the stocks I follow, I don't think forward earnings estimates have bottomed yet. I think CSCO, along with the entire network/telco equip sector, needs to take big restructuring charges, charges against inventory, and charges against debts from the promiscuous vendor financing they've done for years (you catch a disease called BadDebt doing that). Of the sectors I follow, I think that only the telcos have, possibly, finished warning. Consumer demand, IMO, has just started to turn down, and has a ways to go. Falling end-consumer demand then has to filter its way all the way up the supply chain. I think it's a given that we have 2 more earnings seasons like the last. Cut the earnings, and you move the "fair value" goalposts. 2. Sentiment: always difficult to judge. We are certainly seeing many signs of a sentiment bottom: A. net outflows from stock mutual funds B. margin debt way down from the 2000 highs C. Bears on the cover of major news magazines D. lots of put-buying and shorting E. lots of talk on investment threads about going to 100% cash/Treasuries. Many threads that were 100% Bulls 12 months ago, are now dominated by shorts and short-term traders. But I don't think we're at the sentiment bottom yet. There is still a widespread hope in the short V-shaped downturn. There is still a widespread hope that economic conditions are going to bottom "any day now". That hope has to go away before the sentiment bottoms, IMO. But, again, this is very difficult to judge. I'm beginning to nibble on LEAPs in WCOM at 15 and TXN at 30 (not in AMAT or CSCO or NTAP or EMC, yet). And I'm still going to sell the rallies, I expect at least one more January-type false rally before the final bottom. 3. This downturn is different than 1998. 1998 was deep but short. Straight down, then a quick fix by the IMF and World Bank and Fed, then straight up. Today, the problem is too much capacity, too much debt, and falling demand. There is, IMO, no "quick fix" to today's problems. I think consumer spending is going to fall, even in the face of falling interest rates, for a while. At the moment, I'm thinking that 2000-2001 is going to be more like 1973-1974 than anything since then.