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To: John Donahoe who wrote (45420)	3/12/1999 11:39:00 AM
From: Rob S.	Respond to of 164684

The market has seen a divergence from the "nifty 50 (200)" and the majority of stocks that has been very rare in US history. It didn't happen to near this degree before the crash in '87. Economic conditions are, of course, much different than before the crash in the 20's or the downturn in '87, but the divergence has gotten so far out of whack that few economists would deny that it will be "corrected" in one of a few ways: 1] The high-flying valuations collapse, bringing down the rest of the market with it. The counter to this is that the underlying economy is doing great and Asia and S. America should start to contribute to world growth. World economic growth is a plus for the broad economy but is a drain on the equity market in the short term - as they grow they will attract capital away from the bouyant and safe US market. As they grow, prices will rise and US inflation will rise modestly. 2) A rotation out of precipitous valuations and into ignored value or "growth-value" stocks will occur. This is the scenario that I guess (and hope) will occur. It is what Greenspan and other economists and world bankers would most like to have happen. As commodity and foreign import prices rise, cyclical, and battered export sectors will grow. There are many firms with reasonable valuations now that will likely do great. 3) We enter a consolidation phase in which sales and earnings have a chance to catch up with high-flying valuations. I think the outcome will be "all of the above". Some stocks will collapse, some will soar, some will just hang around. The economy will remain robust with great long-term prospects but price declines and increased liquidty won't be the tremendous fulcrum they have been up to now. Still, things as big as the world economy don't change overnight - the shift will occur over several quarters. ---------- The Internet will become even more of a factor in the economy. Up until recently, the Internet has been more wishful speculation than reality. But the tremendous growth rates have been taken from "ground zero". One or a few billion in sales are a small fraction of the over a trillion in domestic retail sales. I think the Internet sector is a great place to have a significant part of your long-term portfolio. And it is a very lucrative place for traders if the dice roll right. "A rising tide lifts all boats" and this is a flood of momentous proportions. But that does not mean that these stocks won't get way out ahead of themselves. They are born on a flood of emotion charged speculation as well as the logic that the market is vast and great things are happening. Those emotions eb and flow. Once the reality sets in that growth rates can't stay at the initial levels and competition is phenomenally unfettered by conventional limitiations, many stocks will come down closer to earth. I think that the advance/decline line is alarmingly bearish. It is easy to ignore it while the market is up so much. But so much wealth is concentrating into the hands of so few stocks. Economist might say "this isn't the most efficient use of captital in the economy" and has never before in history gone uncorrected. But then, maybe things are different. ; ^)