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Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: Mike M2 who wrote (13951)	2/10/1998 11:40:00 AM
From: Cynic 2005	Read Replies (1) \| Respond to of 18056

Intel execs know how to sell. cnnfn.com

To: Mike M2 who wrote (13951)	2/10/1998 2:14:00 PM
From: Zeev Hed	Read Replies (2) \| Respond to of 18056

William, the new era is not in my rationalization but in the massive buy backs of shares for tax evasion. Everytime we write our tax codes in such a way that tax evasion is feasible, the loopholes are being discovered by more and more people (corporation) and we get diversion of financial resources to "less productive" assets. The real estate mania (and the following S&L crisis) were just such an example. In some cases, the buy backs make sense (particularly when a stock is trading under book or near book corrected for taxes). In many cases such as MSFT and MRK where the stock are trading at great multiples of book, these corporations should be able to find better returns elsewhere. However, when the government is willing to finance half of the cost of buy back, a company having an internal rate of return of let say 13% finds that by buying directly its stock in the open market, it actually provides to its stockholders a rate of return (and I'll grant you, it is an artificial rate of return) of twice as much. It is a rare company that can find places to invest money at twice their own internal rate of return on assets. As for the money, these $4 billion bucks (paid to those holders willing to sell their shares back to GM) are actually going to go slosh around in the market looking for a high rate of return. This money act as if it was a tax free dividend and thus a crazy yield of 15%. New era, old era, it is real money injected into the market. Zeev