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Strategies & Market Trends : Roger's 1997 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: Allan F who wrote (7141)	11/18/1997 2:19:00 PM
From: Roger A. Babb	Read Replies (1) \| Respond to of 9285

Allan, the market can grow faster than the GDP under at least two scenarios that I can think of. Both of these scenarios can exist for a several year time span. #1 The GDP includes both market and private companies. Market can grow fast if private companies can be acquired by market at a rapid pace. #2 Profit margin is increasing.

To: Allan F who wrote (7141)	11/18/1997 2:24:00 PM
From: Pancho Villa	Respond to of 9285

AF RE: >>A question has occurred to me, can the stock market on whole grow any faster than the growth of the US' GDP, over time? << Intersting and difficult question. I will give it a shot. Stock market valuation pressumably reflects the present value of future business cash flows. When future expextations run ahead of economic attivity, then one can expect the stock market to advance at a pace well ahead of GDP [i.e., the years that have followed the fall of comunism, end of cold war, etc]. However, in steady-state (i.e., long term) the growth rate should be related (e.g., have some kind of a relationship) but not equal. In fact, historically, the growth rate for the stock market has been ahead of GDP growth (appx. 8% in real terms vs. roughly 3%). The reason for this, i believe has to do in part with the way GDP is calculated which prevents double counting of some items. For example a wholesaler of TV parts output into a TV manufacturer is not part of GDP, the final product is (can someone confirm this please. It has been a while since I studied Macro Economics). Another reason for the discrepancy may be that GDP (gross domestic product) does not include exports and activities of US companies overseas while the cash flows from these activities are indeed capitalized in the stock market. After all the BS above, I will tell you that yes, IMO, the stock market has run a bit ahead of itself and it appears to be overvalued. Otherwise, why would I be hanging around Roger's? Pancho