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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: wmwmw who wrote (13463)	5/10/1999 7:37:00 PM
From: Lee Lichterman III	Read Replies (1) \| Respond to of 99985

>>So, what pushed the market from 9500 to 11000? The companies earnings. The strong fundemantals. Not " great fool". I am not saying in this situation there is no profit taking, but its down side risk is relatively small.<< Then why are this years earnings per share growth on most stocks lower than they were 2 years ago with further slow downs in growth expected. Guess I am the greater fool for not wanting to pay twice the price for half the performance. MU was a much better buy this year at $80 and a $1 EPS loss than it was last year at 20 a share and only a break even EPS. Of course now it is even a better buy at 40 with a 1 1/2 dollar per share loss and an even weaker outlook for DRAM. Computer stocks that are FINALLY admitting they are a commondity are bargain buys now too since they all are starting to lose money or at least see growth slowing. The old DOW stocks that finished growing eons ago are a real bargain now that their PE ratios are triple their historical values. <ng> I am so nice, I will let you buy them all now and I will get them at the garage sale that will be coming some time in the near future (1 month to 2 years) I am patient. Old PE ratios were in the teens when the earnings growth first started , they are now in the 30-40 range with the end of the growth cycle looming near if not already past. Only if you wear rose tinted glasses can you not see the writing on the wall. As many have already stated here, the mania can continue for quite a while but it will end and the longer it takes to end, the uglier the end result will be. That is OK by me as I will have more cash later on than I have now and the overshoot to the downside will make the bargains even better. Also crude DOES affect inflation since plastic is petroleum based, transportation costs for both delivery of goods and the workers themselves all play into costs, not just the furnaces and engines of the manufacturing plant. Would write more but my program is on. I have to find my rose glasses while they talk about how great this market is. <ggg> Good Luck, Lee

To: wmwmw who wrote (13463)	5/10/1999 8:50:00 PM
From: pater tenebrarum	Read Replies (2) \| Respond to of 99985

Wang Wei, 1.crude oil is a major input cost factor in the economy and it may ultimately exert some influence on workers' compensation. some of the more critical economists argue that labor costs may very well rise because general price levels are increasing and not vice versa. the price performance of crude in recent weeks coupled with the sinking bond and some revival in the prices of other industrial materials (to name a few: paper,steel,copper,aluminum) must be considered as harbingers of inflation. the wage component will catch up with this, as increased pricing power by companies will lead to higher wage demands by workers. don't forget that a great deal of wage inflation in the high-skills component of the work force is masked by stock options compensation which is dependent on a continuing bull market and not properly accounted for to boot. if rising commodity prices and bond yields are not warning signs, then what is? 2. allow me to point out that year-on-year broad money supply growth of 9,1% and year-on-year industrial production growth of 0,7% (all referring to the march quarter) seem to invalidate your theory regarding non-inflationary printing of money. 3.AG said he had heard 'new era' talk before and implied that it would be wise to treat it with caution. i happen to agree. 4. extensive economic knowledge has never helped anyone i know of to pick a top in the stock market. i concede that the stock market's valuation as such has been a poor tool to forecast the market's direction in recent years. if you read my earlier reply to you carefully you will note that i have stated that we may well still go higher from here. but i still insist that the 'greater fool' theory applies to this market. if the market were driven by fundamentals, it wouldn't be as highly valued as it is. therefore the only logical conclusion is that the market is driven by liquidity alone, in other words because more money enters the market via mutual funds,401k's,online traders etc. prices are driven higher as this money is put to work regardless of valuations. that is the essence of the 'greater fool' theory - to buy at obviously absurd valuations under the assumption that even more absurd valuations will be accorded to shares later on because 'more money is going to enter the market from the sidelines'. this is of course a game in which we all take part - as long as the theory works, nothing is wrong with that. nevertheless it is important to know that this is the stage of the game we're in. not even the most ardent bulls will nowadays tell you that the market is fundamentally undervalued, or even fairly valued. the only question is: how much more overvalued will it get before the party ends? of course all sorts of rationalizations are bandied about to justify current or even higher valuations. if in need of a good laugh, just look at analysts various valuation models for internet stocks. let me remind you that japan in the 1980's serves as the most recent example of such attempts at rationalization of absurd valuations. i distinctly remember that japan was supposed to be 'different'. it turned out it wasn't different after all. regards, hb