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Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: Worswick who wrote (876)	4/6/1999 9:29:00 PM
From: Sam	Read Replies (1) \| Respond to of 2794

Clark, You've probably read this already, but it has some interesting stats comparing the five largest cap stocks (MSFT, GE, WMT, INTC, & PFE) vs. the staid bond market. A Bill Fleckenstein rap: stocksite.com An excerpt: Musings on mania... How big is this mania, you ask? Things have been disconnected from reality for so long, and the numbers have gotten so big, it is very difficult to say anything meaningful these days. But I think that it's worth a try to get our arms around just how completely out of control things are. Here are a couple of examples (for this analysis, I'm indebted to Jim Bianco of Bianco Research): I've mentioned before that Microsoft's (MSFT) market valuation is over $500 billion, fully diluted. The total value of all junk bonds, as measured by Merrill Lynch's high-yield master index, is $231 billion. So Microsoft alone is twice the size of the junk-bond market. OK, you might say, a fair statistic, but who cares? Well, if you take the top five companies in terms of market capitalization - Microsoft, GE (GE), Wal-Mart (WMT), Intel (INTC) and Pfizer (PFE)- those companies have a market capitalization of around $1.4 trillion. If you then compare that to all corporate bonds as measured by the Merrill Lynch master corporate bond index, which comprises 4,780 issues, you find that those five stocks have a market capitalization that is 115 percent of that index. (As a sidelight to what Jim said, I'd like to add that Pfizer ain't going to be on the list very long. AOL (AOL) is closing in on Pfizer in terms of market cap, and has probably already surpassed it.) I added up the revenues of these five companies, and they approximate $153 billion. What if you had your choice of owning these five companies, or owning all of this debt? Well, I have a couple of numbers to share with you. If you figured that all this debt had an interest payment of about 6 percent, which is probably about right, your interest on that money would be about $73 billion, which is roughly half the revenues of these companies. So you can take a stack of companies that have a market cap of a trillion and a half and you can own them. Or you can own all the debt in corporate America and your interest payments would be half the revenues of those companies. Now I guarantee you those companies don't collectively have 50 percent profit margins. So while nobody wants to own a slow boat like a bond, it does show you how absurdly priced these companies are relative to their revenues. (Of course, if we used AOL instead of Pfizer, we'd have to knock off $13 billion in revenues. And it's worth noting that GE has got over two-thirds of the revenues of that list I gave you.) Again, things are so completely crazy and berserk, it's impossible to make any sense of it and all examples lose their ability to shock. But I'm hopeful that this example sheds some light on the subject.