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To: Arik T.G. who wrote (543)	4/13/1998 9:15:00 AM
From: yard_man	Read Replies (1) \| Respond to of 686

I agree with you. Timing this is very difficult though. I think a strong self-reinforcing move will occur this year. The pundits are all saying stay the course, but there are a lot of people that will move money to protect the gains that they have -- of course everybody can't have those (illusory) gains.

To: Arik T.G. who wrote (543)	4/15/1998 11:32:00 PM
From: FACTUAL	Respond to of 686

The P/E of the market is I believe about 27? In any case the after tax discount rate needs to be factored in. Fifteen years ago the prime rate was 21% ( Chyrsler zero coupons were yielding 33% despite being federally guaranteed ) and now the discount rate is 7% or so. When the discount rate is lowered by a factor of three the price will go up by a factor of three. In your argument if earnings has increased by a factor of three and discount rate changes account for another factor of three then the current increase by a factor of nine is justified. There are two other factors to be considered , the perceived risk of US cash flows and the future discount rate. Fifteen years ago the Japanese ( and some what less so for Korea, Taiwan, Singapore etc) appeared to be set to take over the US economy and their stock market reflected that with their market capitalization exceeding that of ours. Now given the strength of our brand/technology lock our cash flows have a lower discount rate due to the lower perceived level of risk. So based on this theory ( and not on any new era theory) the markets are fairly priced. The future of discount rates now is key to further substantial market gains. At these low discount rates, even small nominal changes will be magnified to large percentage ones and the market could easily go up about one third more. Thus if the Fed believes that it needs to maintain the current rate to avoid exacerbating the merchandise trade deficit the market will continue to hold this level. However should the rates go up then a reassesment is appropriate as small nominal changes on the upside will be magnified just as they are on the downside. With the growing number of households invested in the market within the last twenty percent I wonder if a rate increase is politically sustainable? Finally part of the political equation has to be the higher taxes generated by the exercising of the options allowing the government to exercise what it perceives to be the pleasant task of wealth redistribution.

To: Arik T.G. who wrote (543)	5/23/1998 9:15:00 PM
From: FACTUAL	Read Replies (1) \| Respond to of 686

I thought this thread had died! Your perspective may be correct- that current PE ignores the very high profits currently enjoyed by companies. My point ( which is more of a possible explanation rather than a defense ) is that for some companies ( of which there are no hardware companies save CSCO and certainly not INTC ) eg MSFT AOL Coca-Cola etc, investors appear to be using a lower discount rate as they percieve their earnings to be of lower risk. There is another theory I would appreciate your comments on and that is based on there being no high margin business in Asia that is world class. This theory says that the Western world seems to have cornered the market on high margin business ( consumer brands, software, pharmaceuticals, financial services, etc) that buying emerging markets or Japan is more a bet on these markets being oversold rather than investment opportunity. That this is a trading opportunity. If that is the case and accepting your theory I guess we should all switch to insured money markets or short term municipals?