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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Hank Stamper who wrote (1739)	10/21/1998 3:35:00 PM
From: Justa Werkenstiff	Read Replies (1) \| Respond to of 15132

David: "In other words, the shift by the Fed provides funding for the capital expansion needed for the revenue growth of companies? And, you are saying that the small cap companies are more sensitive to the availability of investment borrowing? Why would this (latter) be the case?" I agree with your statement. As a bank loan officer in a bank that has gotten ripped by investing in emerging markets, are you going to finance Coke over Planet Hollywood? In this environment, Coke gets the nod hands down. But small companies are capital intensive if they want to expand. Small caps are the domestic version of emerging market equities. They are last on the domestic food chain because they carry more risk than large caps. Is Coke going away? No. Is Planet Hollywood going away? Who knows but everyone knows the risk lies with Planet Hollywood and the loan officer will either charge a Planet Hollywood higher interest rate for a line of credit or deny access to capital completely. The Fed. surveyed banks recently and found that this risk aversion was going on. We had irrational exuberance in 1996 and this month Greenspan found irrational fear. I was perplexed over the summer with the Russell 2000. The market segment was caving as the big caps were holding up extremely well. Investors, I believe, were voting like the loan officer given his choice between investing in Planet Hollywood and Coke. Now the Fed. is encouraging the loan officer and the investor to take more risk to provide liquidity.