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Strategies & Market Trends : The Millennium Crash -- Ignore unavailable to you. Want to Upgrade?

To: bobby beara who wrote (2271)	2/25/1998 1:43:00 AM
From: kahunabear	Read Replies (1) \| Respond to of 5676

To All, I am no economist, but I am going to take a stab at my current take on the economy. Uneducated opinions, of course. Please correct me if I am wrong. Though seemingly in the minority these days, I still think there are economic cycles. 1. Up cycle- Over the years, inflation, easy credit and inbred materialism have trained Americans to spend now. As productivity has improved and inflation has been tamed, company profits have improved by selling to the "buy now" American consumer. Stocks have gone up(understatement) with the idea that this will continue indefinitely. Our new found wealth from the market has just added to the buying frenzy. 2. Down cycle - Productivity improvements and increased demand for goods have led to unbounded capacity increases. This continues to keep inflation in check. But, with so much capacity and no pricing power, what happens if a slow down in consumer purchasing occurs ? Deflation? Deflation is already occurring in some products, due only to over capacity. (Eg. Disk Drives) Doesn't it seem curious that there is a glut of disk drives, and margins are gone, during the biggest pc boom ever ? What happens to prices and profits if demand goes down ? Its scary. What happens to the stock market ? Summary The big "if" seems to be when will demand for goods and services slow down ? I don't know. When does the American consumer feel they have enough stuff ? Will people realize that it is better to wait on purchasing in a deflationary environment ? I know I recently waited until after Christmas to buy a PC. Looking back, I should have waited longer. The scariest thing to me is the level of the stock market. It is all based on what the LAST person was willing to pay for a stock. It used to be based on reasonable measurements of value, like earnings or assets. Now, at some of the highest PE and Price to Book ratios ever seen, what happens if we are near the end of a cycle ? I would like to coin a new term - "Vapor Wealth". WS

To: bobby beara who wrote (2271)	2/25/1998 9:40:00 AM
From: Arik T.G.	Read Replies (1) \| Respond to of 5676

BB, Scary stuff, falls in line with the main theme of this thread. They predict Millennium Bug panic to start on 2Q 98 and reach a climax in mid 99. It all converges to a Nostradamus like scenario with global implications not smaller then the big depression, which I believe was caused by the '27-'29 bubble being burst, and which led to WWII. If earnings start dropping (partly resulting from the first 25-30% drop in the main indices) and are forecasted to decrease in the future, what is a rational P/E for the S&P? 10? 8? That's around 1/3 to 1/4 current valuations. ATG