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To: Joseph G. who wrote (2685)	7/1/1998 10:29:00 AM
From: Defrocked	Read Replies (4) \| Respond to of 86076

J.G., there is a great quote in that Reuters clip(emphasis mine): <<As for high stock prices, the currency of choice for mergers and acquisitions, Brown said stock has climbed to 90 percent of deal consideration, "an amazing reversal of where things were 10 years ago when the majority of the aggregate consideration would have been cash.">> The analogy of stocks as currency is circulating on Wall Street lately. It came up in a recent conversation about BRK's merger with GRN. Buffet usually pays cash for acquisitions but used stock instead, saving 50% over last year's takeover costs by some estimates. In another discussion last week, a friend noted that investors are moving money normally held in bank deposits into equity mutual funds "for the long term and yet consider them less risky." Maybe its another sign of an asset bubble: Investors viewing stock holdings as currency. Currency(money supply) is normally defined as fiat money issued by, and a liability of, the government and deposit money which is a liability of a bank. Viewing stock holdings as a currency or medium of exchange ignores an important distinction between financial assets and real assets. All financial assets are debt. But real assets, such as equity shares and real estate, represent ownership rather than creditor claims and are valued by their discounted expected cashflow. If the expected cashflow and discount rate are over-optimistic, the prices for real assets can approach excessive levels as demonstrated by the equity and real estate in Far East markets and probably for equities here in the US. The question in my mind is when will holders of equity shares realize their "currency" is inflated and as a normal reaction begin spending that inflated currency??? Or will the bubble burst so fast that, like a huge currency devaluation, prices instantaneously adjust to more realistic expectations??? I think this market demands investment discipline. If the US market goes quickly higher from here watch for a record number of IPO's to hit the street. Goldman Sachs will not be alone with its IPO as an attempt to liquify shareholders at ingratiated levels. And the market could go higher from here for a while longer. But my instincts are telling me that its not supposed to be so easy and that one should sell at 27 times earnings,not buy. FWIW.