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

To: TobagoJack who wrote (40408)	10/29/2003 3:21:38 PM
From: EL KABONG!!!	Read Replies (4) \| Respond to of 74559

Hi Jay, My take is that we are in an echo-bubble, a mania flashback, a low-interest rate and tax-rebate augmented liquidity deluge that is floating the entire world’s equity, bond, real estate and commodities markets, from Argentina to Zimbabwe. I have to disagree to some small extent with this statement. I think that much of the gains in the the US markets have much more to do with the decline of the US$ versus other world currencies than they do with the creation of more capital bubbles. One perception widely held by investors and corporations alike is that a cheaper US$ makes the price of US exports less expensive in foreign consumer markets, and therefore will provide a boost to sales of foreign exports for their US$ denominated manufacturers, thereby "justifying" an increase in the price of the underlying stocks. While the perception is most definitely true, the reality of this actually happening varies widely from exporter to exporter. The larger point to make though is that as the US$ decreases in value, in order to maintain semblance of order in the markets, the prices of stocks as expressed in US$s must increase, presuming no other factors exist to devalue the worth of the companies that underlie the stocks. In other words, as the world's currencies grind against one another, up and down, down and up, back and forth, and eventually returning to any given random starting point, the expressed value or worth of anything measured in those dollars will or should correspondingly rise and fall in near lockstep with the value or worth of the currency. So, in looking at the advent of a decreasing US$, most stocks should increase in value by nearly precisely the decreased value of the dollar. On top of this, one can add additional value to exporting corporations whose individual fortunes are being enhanced by increased sales of their products in foreign consumer markets. Those corporations whose overall fortunes are being hurt by the decreased value of the dollar should likely see a decrease in the price of their stock. In closing, I would say that yes, some stocks currently are in an overbought situation, or overvalued. But, there are also some stocks that are undervalued. It is up to us, as investors, to know which is which, and to avoid paying an excessive premium to actual value when we buy into a stock, and to not sell our holdings when the sale doesn't give us the proper valuation of the shares. KJC