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Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: Kevin Rose who wrote (133385)	3/25/2001 1:09:42 AM
From: Little Joe	Read Replies (1) \| Respond to of 769667

Kevin: "inflation is not the current crisis" You are right it is not the current crisis. It is the coming crisis As for economists on CNBC. They were the ones who were telling us that the bubble was sustainable indefinitely. It is not hard to grasp what happened. It is really this simple. The stock market was and here is the bad news - still is way overvalued. The market over the long haul will trade at a certain PE. The idiots at CNBC told us this was a new economy. The old rules no longer apply and every justification in the world was given for stocks that were ridiculously overvalued in relation to their PE- and this was when stocks were showing great earnings. Now earnings are not so great and the PE is falling at the same time. There is a concept in markets called regression toward the norm. Basically this means that if the norm for PE is let us say 15 x earnings, whenever the market deviates too far from this it will eventually come back to the norm. Usually when it gets way out of line in one direction, it overshoots in the other. What I am saying is that we have three tremendous forces working against the market. 1. Earnings are falling - In good stocks the percentage increase from year to year are getting smaller and in poor stocks earnings are actually falling. This means that even if PE ratios were to remain high stocks would fall because the earnings are following. 2. The PE Ratios are falling. They are still high but falling. Today we are talking PE’s I think in the 30’s. It changes so fast I can’t keep up. In 1982 when no one wanted stocks, PE’s were as low as 2 or 3. If the market were to go back to a normal PE AND IF, AND THIS IS A BIG IF, earnings were to stay where they are we are still no where near the bottom in this market. 3. So we have falling PE ratios, falling earnings and then we have the fact that the market will overshoot the normal PE ratio before the bottom is in. Think about this. If the PE ratio falls to 5 which I think is about 1/3 of the norm, and earnings keep falling we have a lot further to go on the downside. Kevin, think about whether it is rational that the market fell because of a difference of a 1/4 point which can and will be made up at a later date. Surely it is not. The psychology has changed and in addition to being about PE ratios, the market is about psychology. The cycle is fear and greed. We were in the greed cycle and now we are going into the fear cycle. It is not over. People are not afraid yet. They still believe that in a year or so, the market will reverse and they will be bailed out. Unfortunately, I don’t think we will see a bottom for 5 to 10 years. Sir John Templeton recently suggested an 8 year bear market, although it was not widely reported. What to do? My view is that the government will not allow a depression and the only way to stop one is to add liquidity to the economy. This means pump up the money supply, which has been happening with a vengeance. Soon it will be obvious to all that inflation is the new paradigm and oil and gas stocks, natural resource stocks and believe it or not gold will be the investments of choice. We have already seen the beginning of this in oil and gas and the other evidence is the CA situation, which will spread nationwide. Other commodities such as palladium and platinum are roaring. Still others are firming or quietly creeping up. It will take a while but this will occur along with inflation will come high interest rates and stagflation. At least that is the way I see it. AND I HOPE I AM WRONG. Little joe