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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (34552)	10/26/1998 5:29:00 PM
From: Knighty Tin	Read Replies (2) \| Respond to of 132070

Coby, To jump into your comments to Joe on Tubriks, which I hold $17 billion of in my basement. If the Principality of Savoy ever stages a comeback and my girlfriend, The Principessa, becomes sovereign, we will make a haul. <G> Anyway, when you discuss PE ratios, I don't think the value of the dollar has a direct impact. It does have an indirect impact. Basically, if a company earns $1 this year and sells for $20, the pe ratio is 20 times. If the co. earns $1.10 next year and is priced at $22, same deal. If the dollar is strong or weak, it makes no direct difference as it still takes 20 of them to make $20. Indirectly, a strong dollar attracts capital from other countries and those with less fortunate currencies are willing to pay more for dollar demoninated securities. And, while 20 times may be a lot for those of us who invest in dollars, it may not be for somebody who invests in Tubriks. If the dollar increases in value by 30% vs. the Tubrik, the stock can decline by a similar amount and still be breakeven for the foreigner. So, a strong dollar can have an inflationary impact on our valuations, and, indeed, has done so over the past 5 years or so. But the problem comes on the division between domestic and foreign attitudes. If KO grows at 5%, that may be o.k. to somebody whose currency is in free fall against the dollar. But it is not worth 40 times to somebody whose currency is the dollar. As long as the foreigners keep buying, everything is kaopectate. But, to support huge pe ratios, the Fed has to lower rates to silly levels. Eventually, that hits the value of the dollar, removes the foreign investments en masse, and destroys stock valuation inflation. Now, KO is not a 5% grower in a wonderful currency. It is a 5% grower in a declining currency and worth about half the valuation it previously had. Or worse. And the problem is, not only do foreigners leave our markets, so does hot money of all sorts. Just look back as little as 5 years ago when everyone had to be international. I still remember the crap on CNBS when Mark Mosley, the emerging markets guru from Templeton Funds, was about to appear. "If you only watch one interview this year, this is the one you have to watch." <G> I like and respect Mark Mosley. Buy he knows that markets are cyclical and that emerging markets were due for a fall. It was CNBS who thought they would go up forever. Now, Mark is not only NOT the most important interview of the year, he rarely gets asked to appear. Foreign markets are down. Already, foreign and emerging markets, in select cases, are outperforming the US markets. As one interviewee said in Barron's way before the Asian crisis, "I used to buy a co. in Thailand growing at 20% and selling at 5 times. Now, they are growing at 5% and selling at 20 times." He was right at that time. And, guess what? Now you have lots of third world companies growing at 20% and priced at 5 times again. These markets go up and down like pistons on a V-8 engine. We are seeing the end of the overpriced salad days in the US while the third world is offering bargains. In few years, the cycle will probably turn again. MB