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To: limtex who wrote (112215)	2/5/2002 8:29:44 AM
From: Wyätt Gwyön	Read Replies (3) \| Respond to of 152472

Lay seems to be missing. i wonder if this could be death #2 in the Enron story. anybody else think this dude looks like James Mason? what to they have to do to issue a subpoena to this guy...get a warrant and go find him hiding in the bedroom closet? uk.news.yahoo.com

To: limtex who wrote (112215)	2/5/2002 12:03:03 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 152472

Sure tghis qtr is going ot be bad OK but for ever? Histroy is against you. first of all, i never said anything about "forever" (or even about this quarter). as for history, well, here's a little history lesson: over about the past 200 YEARS, real equity returns have averaged 7%. the dividend for this period averaged 5.4% and stock price appreciation 1.6%. since 1872 the PE has been 14.5, for an earnings yield of 6.9%, which is basically equal to the real return over that period. today, the normalized PE would be something in the low 30s, for an earnings yield of about 3%, which is the approximate expected return in my book. this figure can also be reached by adding real earnings growth of a little under 2% to the div yield of 1.5%. even if you add in stock buybacks as part of the dividend yield, the yield only reaches 2.4%. so the real expected return seems to be between 3% and 4.5%, depending on which figures one uses. meanwhile, TIPS are yielding about 3.5% for what i consider a risk-free return. so the equity risk premium is somewhere between -0.5% and +1%. whereas historically, it has been close to 7%. since profits cannot grow faster than GDP growth over the long run, i anticipate very low returns for US equities from current high prices. as i have stated before, it is at least theoretically conceivable that we have reached a "permanently high plateau" a la DOW 36K, such that equities can get away with an extremely low risk premium compared to the past. however, my guess is that this plateau is about as "permanently high" as that espied by Irving Fisher back in 1929, right before the market crshed. but if that sounds bad, wait...it gets worse. in the 20th century, earnings were about 7% of market cap. cos paid out approximately about 55% of this amount as dividends and kept the rest--equal to 3% of market cap--for reinvestment to grow their businesses. today, companies have higher PEs, so earnings are about 3% of market cap. companies pay out about a third as dividends, use another third to buy back stock (thanks to all the options they issued), and have only one third of earnings--equal to 1% of market cap--left over for reinvestment in their businesses. it is highly unlikely that 1% of market cap will cover cos' investment needs. imho they will probably have to issue more debt or equity equal to 2% of market cap to meet future business investment needs. in any case, i just don't see high returns from today's prices. And how much damage was Enron? $80bn? How much has MSFT dropped or CSCO or even QCOM for that matter* the damage of Enron goes way beyond the money. it is about trust. if people can't trust the numbers companies put up, then they will recognize equities are risky and increase the risk premium. that is another way of saying equities will become cheaper, imho. all JMHO.