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To: JRI who wrote (89115)	1/13/1999 9:12:00 PM
From: BGR	Respond to of 176387

John, Thank you very much for a very well argued post. Helped me a lot in analyzing my own position. Regarding the points you raise: 1. I completely agree that h/w is most likely at the start of a multi-year up-cycle. This is clearly a plus from the fundamental side. +1 2. US liquidity for a very large part is created via heavy bank lending and use of derivatives. Whatever is bad for the banks - and I am not sure of how much exposure to Brazil the banks have, but I presume that it will be comparable to what the German banks had in Russia, i.e. not insignificant - is bad for liquidity. Now the Fed of course may balance the equation by lowering interest rates and adding liquidity. Still it is a matter of somewhat concern for me. 0 3. Regarding PEs, I am really not that concerned about the PEs of US equity that much in isolation. It is the PE combined with volatility that bothers me. For example, YHOO increased earnings by 1000% yoy this quarter. Assuming that it may maintain this pace for the next 3 years or so (quite possible given the explosion of the net) and given the present interest rate climate, a high 3 digits PE doesn't seem too irrational for YHOO. However, if the stock price increase with regular and smooth, I could possibly argue that such rationalization was the cause rather than speculation. Since that is not the case, I think people have stopped bothering about PEs - which is distinct from accepting high PEs - and are simply playing a liquidity driven greater fool game. -1 4. Large caps vs. small caps disparity is mostly a result of heavy indexing while indexes are comprised of a handful of stocks. Again a negative, makes indexing meaningless. Note the jump in AOL price on addition to the S&P. -1 I am non-commital about the last two points, which do not affect my market vision in any significant ways. In fact volatility is a symptom rather than a cause, I feel. Net, I have 2 negatives and a positive. -Apratim.