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To: Roderick Francey who wrote (15472)	8/7/1998 11:16:00 AM
From: Alex	Respond to of 116764

JOHN CUNNIFF AP Business Analyst NEW YORK (AP) - It takes a lot of adversity to crush the hopes of Americans brought up to believe that, economically, things get better and better if you work hard and intelligently. It is part of the American psyche, made possible by constitutional freedoms, demonstrated by the experience of generations and repeatedly reinforced by tides of immigrants. But now there arises the question of whether Americans may place too much faith in the immediate future. In believing that the door to a new era has opened. In spending rather than saving. In the way they invest. The latter offers the best illustrations, since investors in stocks still pour billions of new dollars into the market each month, seemingly unconcerned with market averages that defy common sense. Net new cash flow into long-term stock mutual funds in June was $19.3 billion, bringing to $126.28 billion the amount of new cash into such funds in the first six months of the year. They may have been removing hundreds of millions of dollars from mutual funds in the past few days, but simple mathematics shows these withdrawals to be paltry when matched against the trillions remaining. The heavy investing has occurred, more than a few market analysts observe, while a good many generals - that is, the old pros - were retreating, having lost their faith in the immediate future. In effect, they were back at headquarters while the ground troops charged into a no-man's land, rushing forward because, after seven years of bullishness, it was the only thing they know how to do. Mike Flament of Wright Investors' Service, said it well: ''The current bull market is second to none in the degree to which investors can rationalize away almost every extreme the market goes to.'' Perhaps, he said recently, Yahoo should trade at a higher market value than the New York Times, a result of selling for more than 100 times sales (not earnings). But at the least, that assumption is questionable. And, he continues, perhaps Coca-Cola ought to sell at 50 times earnings, more than three times its growth rate. ''If Warren Buffet owns it, who are we to question its value?'' He suggests a sense of history is missing. Were it present, it would be known that stocks average closer to 15 times earnings than 25, and that stocks over the long term gain an average of less than 12 percent a year. Market historians also know that at least once before Coca-Cola was selling at close to 50 times earnings. That was in the early 1970s, just prior to its 70 percent collapse in the 1973-1974 bear market. What's mesmerizing about the current economy is that the surprises still are positive. Companies still generate profits. Inflation is low. Incomes are rising. And home equities are swollen. On many occasions in the past, the ordinary American has been fairly accurate about foreseeing economic events, such as reducing spending and increasing savings in anticipation of worsening conditions. So far, they haven't indicated a great fear of the future, and, who knows, they might be right. Maybe the best sellers at the bookstores are correct in their dreamy depictions of a new era of prosperity. Such a society, after all, isn't altogether at odds with the American story. But history reveals some bad chapters in the story, and you needn't go back any further than the 1970s and early 1980s to find them.