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

To: Jim Willie CB who wrote (22629)	7/18/2003 7:36:02 AM
From: stockman_scott	Respond to of 89467

With the recent huge run in tech stocks is the time to look to shorting again a wise move? According to Newton's law of motion what goes up will come down. But when? Have We Learned Nothing About Risk? Wednesday July 16, 7:00 am ET By Mark A. Sellers Morningstar.com "Experience is that marvelous thing that enables you to recognize a mistake when you make it again." --F.P. Jones Despite dropping 9% the day of its second-quarter earnings release, Yahoo (YHOO) sells for almost 100 times its First Call 2003 earnings estimates and more than double our estimate of its fair value. Amazon.com (AMZN) has a share price that is about 85 times forward estimates and almost triple our fair value estimate. EBay (EBAY), the golden child of the Internet, trades for 78 times forward earnings estimates and 45% higher than our fair value estimate. One would think that with nearly every Internet stock having run up 100% or more this year, investors would be reminded of the party that started in late 1998 and ended roughly 18 months later. In 1998 the easy-money spigot was opened wide by Federal Reserve Chairman Alan Greenspan in the wake of the emerging-markets currency crisis. With a glut of liquidity and a Fed that seemed willing to do anything it could to prop up stock prices, investors forgot about risk and threw money at speculative stocks. Warren Buffett has said that companies do dumb things when they have too much cash lying around. Investors do, too. Sadly, over the past month or two, investors have asked me about my feelings on Internet stocks more times than I can count. It seems many people are still enamored with these stocks and are willing to pay almost any price to join the party. Have we learned nothing over the past three years? To Infinity... and Beyond But it's not just Internet stocks that people are fascinated with--it's nearly all technology stocks. Intel (NasdaqNM:INTC - News) sells for 37 times and 28 times 2003 and 2004 earnings estimates, respectively, and 60% higher than our fair value estimate. EMC (NYSE:EMC - News) sells for 70 times 2003 estimates and 58% higher than our fair value estimate. Ciena (NasdaqNM:CIEN - News) has an infinite P/E because it's expected to lose money in both 2003 and 2004. Same thing for JDS Uniphase (NasdaqNM:JDSU - News). Both stocks currently trade far above our fair value estimates, based on the risk-adjusted value of their expected free cash flows. But still, I get asked about these stocks all the time because people want so badly to join the party. They're chomping at the bit to own a piece of these and many other tech stocks. They want so badly to believe the Wall Street pitchmen who keep increasing Yahoo's "price target" after the stock has already gone up 200% in less than a year. They want so badly to find a rational justification to act on this insanity. Have we learned nothing? And then there are the biotech stocks. I'm a big believer in the prospects for biotech over the next decade or two. There are going to be some incredible advances in medical science, and this will be driven in large part by the novel drug discovery techniques employed by the biotech companies. But listen, I wouldn't advise even my worst enemy to put new money into most of these stocks right now. Genentech (NYSE:DNA - News), admittedly a great company, sells for 68 times 2003 estimates and 53 times 2004 estimates, and about 80% higher than our estimate of its intrinsic value. ICOS (NasdaqNM:ICOS - News) has an infinite P/E, as do many of the biotech companies, nearly all of which sell far higher than any rational estimate of their future free cash flows. Like those of many tech stocks, the infinite P/E ratios of many biotech stocks have gotten significantly more infinite over the past few months. In fact, they're now beyond infinite and are happily residing in "ludicrous" territory. Have we learned nothing? Fair Value and P/E Using P/E ratios is just one way to think about the valuation picture. Another is to look at the average price/fair value ratio of the stocks we cover at Morningstar. Warning: This picture isn't pretty. We have a staff of 30 stock analysts who publish fair value estimates on about 500 companies. If you make the assumption that, on average, our 30 analysts are as adept at forecasting cash flows as the market is, then it's worth looking at the average price/fair value of our coverage list as a measure of valuation. Currently, the average price/fair value ratio of all stocks covered by Morningstar is 1.13. That means, on average, the stocks we cover are about 13% overvalued relative to our estimates. This is the highest ratio we've seen since we began publishing fair value estimates in August 2001; the previous high was 1.12 in March 2002. Over time, the market has tended to hover right around a 1.0 average price/fair value, and whenever this ratio has gone above 1.1 or below 0.9, a reversion to the mean has taken place. This reversion has typically happened quickly and abruptly.

To: Jim Willie CB who wrote (22629)	7/18/2003 7:46:19 AM
From: stockman_scott	Respond to of 89467

A Black Month of July ______________________________ By Jean-Marcel Bouguereau Le Nouvel Observateur Thursday 17 July 2003 For George Bush, this month will be the worst of his presidency. A black month of July. Added to the Pentagon telegrams announcing to their families the deaths of 82 American soldiers since the first of May when Georges Bush had declared the end of hostilities is a record deficit of 455 billion dollars due to the expenses of a never-ending war and a recovery that has not so much as shown the tip of its nose. The result: the American President’s popularity has seriously declined, favorable opinion falling 14 points since the war’s end. The situation on the ground in Iraq is looking more and more like the worst nightmares: yesterday a series of rocket-launcher and grenade attacks came to “celebrate” the anniversary of Saddam Hussein taking power 26 years ago. The day before, the Pentagon had pushed the return to the United States of a part of the prestigious 3rd infantry division, some 10,000 men, back to the fall, Georges Bush himself having acknowledged that there was a “security problem” in Iraq. All this comes at the worst moment when the White House, with regard to the weapons of mass destruction, is in the process of rather clumsily “defending the indefensible”, as the New York Times writes, trying to stop up the leaks opened by the gross forgeries the intelligence services supplied with regard to Saddam Hussein’s uranium. Alarmist reports written by Donald Rumsfeld’s special envoy in Iraq indicate that troop moral is starting to sag. That the daily pigeon shoots make an army uneasy that was rather well prepared for war, but in no case to be a police force, nor a fortiori an army of anti-insurrectionist repression. Because that’s what it’s about: the report sent to Donald Rumsfeld describes the situation as “continuous looting on an industrial scale by bands of Mafiosi who are taking over Iraq” while escapees from Saddam’s militia and the Baath party harass the soldiers and pressure the population. Up until now Bush had sailed on the emotional wave of September 11. That page appears to be imperceptibly turning. ------- Jean-Marcel Bouguereau is Editor-in-Chief of the Nouvel Observateur. He is also an editorialist for the République des Pyrénées, for which this article was written. Translation: TruthOut French language correspondent Leslie Thatcher. truthout.org