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Technology Stocks : Xilinx (XLNX) -- Ignore unavailable to you. Want to Upgrade?

To: Charlie Smith who wrote (2319)	5/3/1999 1:20:00 PM
From: Lucinos	Read Replies (1) \| Respond to of 3291

I am not talking about the inflation of common goods and living standard which has been low in the last few years. The term "inflation" I am using may be confusing to you. However it is a very common concept for economists. If you regard the stocks as one kind of merchandise, due to the high demand and fix supply of good stocks in the stock market, the price of stocks with strong growth potential is keeping on going up in the last four years. Due to this demand supply mechanism, the historical PE for companies like XLNX was below 30 in the early 90's. However, it is around 50 to 60 for a few months now. It seems to me that people is gradually used to this high PE ratios as long as the bull market is still existing. The same arguments of the inflation of stock prices may well apply to internet stocks with relatively high PE ratios. As you can see, I am not talking about the inflation of traditional goods. It is the inflation of stock price that I was trying to relate to. Lucinos

To: Charlie Smith who wrote (2319)	5/3/1999 5:08:00 PM
From: Lucinos	Read Replies (1) \| Respond to of 3291

I agree with you. Due to low inflation, money flows in because the improved fundamentals. The low inflation is definitely the "cause" and the only driving force in the initial phase of a bull market, and the "effect" of this cause is clearly the increasing of PEs for stocks. However, I would also like to suggest that the "effect" of this cause of fundamental improvement can easily transform itself and become the "cause" of the running of stock prices in the second phase of bull market. As you can see, at this phase the psychological reasons plays a more important factor than anything else. People is afraid of being left behind. Without this psychological reason, we can not explain the fact that the PE ratios of XLNX as well as other good companies have been doubled from their historical values recently. This is the reason why I said the PE value itself is inflated recently in this market. It is all caused by the disequilibrium of supply and demand of stocks. The question here is very basic. Just as you mentioned, if the inflation is rising, the stock price will fall. However, before it happens, do we feel comfortable with XLNX's stock price at this high multiple of earning growth. I would like to suggest to stay with it until the changes of market fundamentals. Lucinos