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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Chispas who wrote (97066)	1/17/2004 11:40:52 PM
From: Chispas	Read Replies (2) \| Respond to of 116764

Here's some sanity, from Langostino on IH : "this is not your father's market (with apologies to Buick's ad people), and it never will be again. One problem with making historical comparisons is that the beast and the conditions have changed fundamentally. It's an apples and oranges comparison. Take for example a highly liquid and a highly illiquid stock. All things being equal, you would demand a discount to buy the illiquid stock. Same thing is true with commissions. In a high-commission environment, you would demand a greater stock price discount to even things up. Equities as an asset class can command permanently higher metrics today because they are much more liquid, because transactions costs are a fraction of what they once were, and for a variety of other reasons. The other day, Lucent traded 140 million shares. I want to tell you, that made me feel OLD. Because I can remember like it was yesterday, the first day the entire NYSE first traded 100 million shares in a day. Think about that! Now think about IRAs and 401Ks. Again, I'm feeling OLD because I remember when those things didn't exist. (And yes, I can still remember the 18% Treasuries I bought with my very first IRA contribution. Lord I wish I could that again!!!!!). Today's markets are different from a supply-demand situation because of the existence of self-directed retirement accounts and the guaranteed amounts of money that flow into the market automatically from these things. Now think about the "democratization" and "demystification" of the equities markets that has taken place in the age of the internet. 25 years ago it would be incomprehensible that such a huge percentage of the population would be conversant in equities marketspeak, have fingertip access to such an overwhelming avalanche of information that they would feel comfortable enough about it and about their own knowledge to be talking about it in taxicabs and down at the corner diner. Think about it -- there are entire cable channels devoted to the stock market, there are dozens of t.v. shows about the equities markets, and there is a stock market ticker running across the bottom of the screen on mass-consumed channels like CNN Headline News, fer cryin' out loud! Every night on the ABC, NBC and CBS news there is an equities market recap. That was NOT part of the landscape until very recently (in historic terms). Consider the difference in percentage of American's who own equities today, who know how to get their savings into the markets relative to 25 years ago. Back in the "old days" if you had $500 and you wanted to own a stock, you had to go down to an intimidating big brokerage house. You'd be laughed at, in all likelihood. Today, there's no embarrassment, no intimidating, stodgy Wall Street broker standing between you and the markets. $500 and a few clicks of the mouse and you've opened an online account to trade. No muss, no fuss, no potential embarrassment. No intimidation. That is a flood of demand to buy equities that changes the dynamics of equities markets today. They are just a different beast. There are many more fundamental differences I could cite, but you get the idea. All of these fundamental changes have made it so that equities can and should trade at higher multiples than they did "back in the old days" -- or said another way, the discounts that needed to be in the market to account for illiquidity, transactional costs, the danger of lack of inflows, the lesser stability of the equities markets borne of fewer participants, etc., etc., have been eliminated to some degree. Obviously, to what degree, is a question that merits discussion and could be argued well from a number of viewpoints, but it is (to my mind anyway) indefensible to suggest that U.S. equities market today, all other things being equal, should trade at equal multiples as it did in the past under very different conditins. Oh, also added in the mix, we are now part of a global economy and set of interconnected global markets that could be argued should provide some greater stability also. And then, of course, there are those who would argue that monetary policymaking is far more sophisticated today than it was in the past, thereby removing the risk of depression and severe recession. If you buy that, then here again is another example of a fundamental change in condition that would suggest more risk-discount that can and should be removed from valuation metrics. I know there are those who suggest there is a monstrous disaster awaiting us shortly in the future that has only been delayed and disguised by the Fed, Treasury, Wall Street and money center banking system, and that that would negate the alleged "success" we've had in dampening the impact of the biggest bubble unwind in history. Even still, it would be hard to argue that the events of the past couple years have demonstrated the greater sophistication of financial institutions and the federal government in control of monetary and economic cycles."