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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Ron Bower who wrote (4920)	6/28/1998 3:02:00 PM
From: Zeev Hed	Respond to of 9980

Ron, quite some questions: 1." With the trend of US companies to buy back stock rather than pay dividends, what will happen when the baby boomers retire and begin looking for income producing investments versus growth?" Whom do you think the corporations are buying these stocks from? Would you rather they pay dividends taxed at 36% or higher or buy back 5% of your stock taxed at (only the gains) at 20%. 2. "Can the emphasis on large cap stocks continue when they are selling at such high PEs and BV multiples? The huge amounts of monies entering the market and these monies going primarily into large caps looks very much like a Ponzi pyramid to me." You got to be selective, right now T and BA are starting to look like bargains again while MRK is fairly priced and Coke is always going through the roof (VBG). You do not have to be part of the ponzi, and you have to recognize that this cycle will end when liquidity dries up. 3. "The US has had a long 'boom' economy. At a certain point, consumers reach a point where spending slows (they have what they want and their debt prompts them to stop spending = 'economic cycles'). US companies have few options to continue growth. We are already in the period of mergers and acquisitions to give the appearance of growth, but the net effect becomes a larger company generating no more revenue than the separate. For US companies to continue growth, wouldn't it have to come from non-US consumers?" As long as goldilock scenario continue, I see no problems. Once we hit a cyclical top, yes we may have a sizeable correction. Do I see such over the next six months? Not yet, will it happen sometimes in the next two years? I do not know. We might actually see a scenario in which just as domestic consumption starts to level off, the Asian economies are regaining their foothold and become once more an engine of growth of world economy, more goldilock scenario for another three four years. Will it happen? I know not. Is it necessary to have a 80% to 90% bear market? I doubt it. What I can see, however, is a protracted period like 62 to 82 in which the market is bound between about 6000 to 12,000 or even between 5000 and 10,000, including three or four major moves up countered by similar moves down. The technical analysts garden of heaven. 4. "If we have an outflow of monies due to imports and capital expenditures by US companies into other countries, wouldn't this also contribute to a decline in the US economy?" Investments overseas are supposed to have rate of returns, if these are better than available domestically, this outflow is not worry some at all. As for imports, yes if they become so great that they are destabilizing the market place these could be hazardous. The nice thing about the market is that it will devalue the dollar (thus reducing such imports) if imports and in general overall balance of payments will become too large relative to the economy. Just be careful to make sure that you account for our "export" of raw dollars as well. Right now many economies are run on the greenback, and this is interest free loans we are getting as long as those countries stabilities are in question. 5. "Finally, would all of the above make the US market further overvalued and require a correction? That the outflow of monies from equities into bonds and other income producing investments lower interest rates and thus cause a devaluing of the $US?" Since when lower interest rates necessitate devaluation of the dollar. The dollar has strengthened in the last six month in face of our long term interest rate reaching lows not seen in almost 40 years. ASs for correction, we have had a nice one last Oct. to January this year, we just had another from early May to just two weeks ago, and my turnips are on record that we may have another one after the end of July culminating with a minimelt down (1000 Dow points) by the end of October beginning of November. Corrections are healthy, Chinese torture bear markets is what I dread. 6. "Doesn't this make investment in other countries more attractive to the long term investor?" Where? Russia? Europe? Asia? how about Africa? I would not know where, even south America is more vulnerable to the current storm in Asia then we are. Europe is playing fire with a new universal currency without having the political unity required to back such a currency. Russia and Asia are currently in the roulette category. I like the US for the time being. Zeev