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Non-Tech : QQQ - Nasdaq 100 Trust -- Ignore unavailable to you. Want to Upgrade?

To: Mannie who wrote (646)	8/14/2001 11:45:18 AM
From: OldAIMGuy	Respond to of 840

Hi Scott, Here's the graphs. aim-users.com (NASDAQ Comp.) aim-users.com (P/E + Interest Rate) Historically this has been a very good indicator. However, since late in 1999 and early 2000 it's been almost 180° out of phase. This may be because of the switch from an expanding P/E environment to a contracting one. Prior to 2000 the market had been willing to bid up the P/E and now it's become "value" conscious and is wanting lower and lower P/E's. This is happening just as the Value Line Average P/E is blowing up because of the drop in earnings. A year ago the Value Line P/E dropped down because of the earnings reporting lag. It gave a false Bullish signal in the initial price drop of the NASDAQ. Actually there was that first bounce up that lasted until August 2000 before the real earnings deterioration started. Interesting is the drop in Interest Rates while the P/E has been expanding keeping the Sum in a relatively tight range. I guess we could give the FED reasonable marks for keeping this indicator pretty close to the Neutral zone. Since there's always a lag in the P/E data (it's trailing) there's always going to be some dislocation. The P/E should peak sometime in the next quarter or two as earnings bottom out and lower interest rates and business streamlining start to have some effect. A quarter or half percent interest rate drop certainly is within the realm of possibilities as the P/E continues to expand. There's another alternative. We could start to see the Value Line P/E start to drop if "average" price/share starts dropping. If the ave. price/share dropped faster than the ave. earnings/share, then we could see the P/E contract a bit. That might spell the end of the FED easing. So, it looks like we either have to 1) see companies "earn" their way out of this mess; 2) ave. price/share drop; 3) further FED cuts; or 4) some combination of the above. Best regards, Tom