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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: stockman_scott who wrote (299)	6/9/2002 10:02:04 AM
From: Jim Willie CB	Respond to of 89467

Savoie on economic recovery versus stock recovery, goodstuff goes back to my point earlier that the "earnings yield" is 2% or under thus (as with shorterm bonds) zero real rate of return such RRR concepts go right over common investor heads since WWI, zero RRR environmt is very bullish for gold simply as an alternative to paper but mostly because zero RRR means "trouble in financial markets" usually a signal that end of cycle is here 321gold.com excerpt: Rather than wondering if Wall Street's concerns are overdone or if the economic barometers are going to experience new weakness in the months ahead Mr Stack would do better to pose the following questions: 1. Is it reasonable to expect a stock that is twice as expensive as it should be to become even more expensive just because the economy returns to a moderate growth path? 2. Is it reasonable to expect stocks that are already over-priced to become more over-priced in a rising interest rate environment, that is, in an environment where price/earnings ratios will tend to contract? 3. Why should this month's reading of 55.7 for the Purchasing Managers' Survey cause investors to pay substantially more for stocks than they were prepared to pay during the many other times over the past 35 years when the survey result was at this level or higher? The major problem faced by the stock market - the main reason that the senior stock indices continue to sink in the face of bullish economic data - can be quickly recognised by doing a valuation analysis of almost any of the large-cap tech stocks. For example, let's take a look at Intel. Intel should benefit greatly from a strengthening economy since it is, in effect, a commodity-cyclical company (the computer chips Intel produces are 'new age' commodities). The problem is - and this is the problem faced by the entire market - Intel is selling at twice its historic price/sales ratio. 'Old age' commodities, however, are quite cheap (in CPI-adjusted terms many commodities are selling near their lowest levels of the past 80 years). So, there is every reason to expect a strengthening economy, even if the strength is only nominal, to result in considerably higher prices for 'old age' commodities such as copper. In summary, it's all a matter of valuation. / jim