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Technology Stocks : Applied Materials No-Politics Thread (AMAT) -- Ignore unavailable to you. Want to Upgrade?

To: Cary Salsberg who wrote (4540)	12/20/2002 10:35:33 AM
From: Sam Citron	Read Replies (1) \| Respond to of 25522

AG speaks out on Tech Bubbles: ..."Ironically, low inflation, economic stability, and low risk premiums may provide tinder for asset price speculation that could be sparked should technological innovations open up new opportunities for profitable investment. Even in such circumstances, bubble pricing is likely to be inhibited for a company with a history. To be sure, the stock prices of old-line companies do rise somewhat through arbitrage when the market as a whole is propelled higher by stock prices of cutting-edge technologies. But it is difficult to imagine stock prices of most well-established and seasoned old-line companies surging to wholly unsustainable heights. With some prominent exceptions, their capabilities for future profits have been largely tested and delimited. The situation is likely different in the case of a new company that employs an innovative technology. Under these circumstances, the dispersion of rationally imagined possible future outcomes could be wide. If forecasts are unfettered by a need for consistency with the past, investors might take off on unwarranted flights of optimism. Moreover, skeptics find it too expensive or too risky to short sell the shares of such a company, especially when its stock price is rising rapidly. The conditions of extended low inflation and low risk were combined with breakthrough technologies to produce the bubble of recent years. But do such conditions always produce a bubble? It seems improbable that a surge in innovation in the near future would generate a new bubble of substantial proportions. Investors are likely to be sensitive to the need for asset prices to be backed ultimately by an ongoing stream of earnings. Hence, a further necessary condition for the emergence of a bubble is the passage of sufficient time to erode the traumatic memories of earlier post-bubble experiences." ... federalreserve.gov