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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: smolejv@gmx.net who wrote (13405)	1/13/2002 3:08:56 PM
From: GraceZ	Read Replies (1) \| Respond to of 74559

I read the Soros link and I agree with some of his points. Its abundantly clear that a large number of naive investors created cheap capital (along with the Fed). But you have to go back to what caused the explosion in the number of naive investors. These companies (the generals)in their growth stage had great returns on capital hence their stock price reflected that, which in turn gave them cheap access to capital. Cheap capital has a way of sowing the seeds of its own destruction. There was a serious deterioration in the quality of earnings, but very few cared as long as the market continued up. When I started out in the markets it was right after the big break in 1987. Everyone I knew told me I was nuts to put money in the stock market, even my stock broker was surprised that I wanted to put money in stocks, she tried to sell me insurance annuities! By the time the market peaked in 2000 every one of those people who warned me in 1987 was in the market and fully invested. Most lacked the knowledge or determination necessary to look at an income statement or a spread with quarterly comparisons to determine where these revenues and profits were coming from. Some of these big companies had a huge percentage of their earnings coming from investment activities and this wasn't their core business. This wasn't hidden, it was in plain view to anyone who read the income statements. Over and over again you saw people arguing that there was nothing wrong with that picture. There was a suspension of common sense even among those that should have known better. As long as this speculative urge exists among pros I have little hope for the public. People will have to suffer quite a bit more before the speculative beast is killed here as it is in Japan. Watching the market action in the last few months tells me there are still quite a few believers still out there, either that or those who are willing to suspend disbelief to try to make a few bucks off the less quick.