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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Hank Stamper who wrote (53988)	10/9/2001 12:23:07 PM
From: Sam Citron	Respond to of 70976

Lam Research clipped by downgrade (LRCX) by Tomi Kilgore Analyst Sue Billat at Robertson Stephens downgraded the shares of Lam Research (LRCX) to "market perform" from "buy," helping to send the stock down $1.25, or 6.7 percent, to $17.45. Billat said the move was based on her concerns over its excess inventory, weak execution on its spares and service business and on its exposure to weak metal and polysilicon etch markets. She said the company should benefit from its oxide etch business, but not by enough to overcome its other problems. source: CBS Marketwatch MarketPulse

To: Hank Stamper who wrote (53988)	10/9/2001 2:18:59 PM
From: Jacob Snyder	Respond to of 70976

OT: market's PE contraction in bear markets: Reading off a chart for the S&P 500 I've got pinned up in my office: year,peak PE;year,trough PE; % decline in PE 1961..22.....1980....7.......68%..inflation went from 1% to 15% in 19 years. Intermediate stages: 1961..22.....1962..15......32% 1964..19.....1966..14......26% 1967..18.....1970..13......28% 1971..19.....1974....7......63%..inflation goes from 3% to 12% 1975..12.....1980....7......42%..inflation goes from 5% to 15% My chart ends in 1998; I don't know the 2000 peak PE. Do you? (It was around 35, I think.) You are right, the last secular Bear had a sawtooth pattern of valuation changes, stretching over 2 decades. During most of those years, the PE was either increasing, or holding steady at a high plateau. The low valuation wasn't hit till 13 years after the peak. And then that low valuation was retested 6 years later, before the secular Bull market started. The market PE is strongly correlated (inversely) to inflation. In the 1961-1980 Secular Bear, the peak PE in 1970 was only slightly lower than the secular peak back in 1961 (19 vs. 22). The massive contraction in PEs (down to 7) was accompanied by a massive increase in inflation in the 1970s. Inflation troughed in the 1-2% range, in 1961,1987, and 1998. I'm about 90% sure that 2002 will see another inflation trough, in that same range. The first two of those troughs correlated with multi-year PE peaks. In 1998, the inflation trough correlated with a return (for the first time in 37 years) to the 1961 valuation levels, before going on to the Bubble Peak. So, I don't expect a secular bear, and I don't expect a return to single-digit market PEs, unless I see signs of resurgent inflation. Based on where the market PE has been when inflation was in the 1-2% area, I'd expect the market PE to be in the 22-15 area in 2002. That's using trailing earnings. Which raises the question of whether Creative Accounting, and the difference between GAAP and Pro Forma, is greater now than in earlier decades. If so, then all the data above is skewed. I don't know the answer to that question. At the earliest, I see inflation as a 2003 problem. IMO, we can forget about it till then (the Fed has, by word and deed). Which means, based on the consistent pattern of the last 40 years, that we shouldn't expect a big decline in market valuations in 2002. Which contradicts my expectation of a PE in the 22-15 area. Which leaves me uncertain. BTW, the other scenario that leads to a single-digit market PE, is the 1930s pattern: deflation, protectionism leading to a collapse of world trade, political instability thru most of the large economies, a collapse in consumer and business spending/confidence lasting 10+ years. I see no chance of those conditions recurring.

To: Hank Stamper who wrote (53988)	10/9/2001 3:43:50 PM
From: Kirk ©	Read Replies (2) \| Respond to of 70976

PE: How is it possible that the p/e could get to 10 or lower? Through a series of bear/bull cycles in which each cycle progressively lowers the high and low p/e. In this senario, the last bear bottom brings us to the range of the historical low p/e. This is the opposite side of the coin of the expanding p/e ratios we saw develop between 1982 and 2000. How long will that take? I.e., how many bear/bull cycles will we see before we hit the final, final bottom with a p/e close to 10? I bought my first home in 1984 and I couldn't get a fixed rate as they were about 17%... but I got a variable for 14% that was tied to the 1yr T-Bill or 11th dist cost of funds. IF you use an earnings yield model for "fair value" as Greenspan does, then you take the inverse of the long term bond rate to get the fair value P/E. I have 10yr=4.51% and 5.31 for the 30 yr. IF you just ratio 14%/4.51%, you get a factor of 3.1 for the longer bonds and the 30 yr is 17%/5.3%=3.2 So if the bear bottom in 82 was with a p/e of 7, then it might makes sense today to be 3.1 times higher or 21.7! Of course, we could overshoot this on the negative side... Kirk PS the next questions will compare tax rates and quality of earnings between then and now. Lower taxes gives a higher expectation for future value so that also adds to acceptable p/e or you could argue that is implied in the long bond price.

To: Hank Stamper who wrote (53988)	10/9/2001 7:33:30 PM
From: Zeev Hed	Respond to of 70976

Not whacked out a all, a similar model suggested in April of last year here: Message 13483082 A long period where earning finally catches up with valuations (and thus a gradually declining PE.). But in our case, namely AMAT, I doubt we will reach the high of the last cycle in the next semi cycle, since the last high was a real "outlier" in term of normalized valuation models (caused by the excess valuations of all the dot.com, or hat is now called the bubble). I have $75 as the max for the next major top in AMAT, still a very nice double from here (or almost triple from the recent lows). Zeev Zeev