Forum Archive Index - April 2000

[ril <ril99_99@yahoo.co.uk>]

Hugh, I would have been terribly disappointed if you had agreed with me.

Let me make a few points:

1.      Rationality indicates that all stocks are overvalued. This is   simply
calculated mathematically for industrials using an      appropriate discount
rate. For tech stocks when one appreciates      the implied earnings growth
one can pretty well establish the       overpricing on the balance of
probablities. Although if one is                wildly optimistic one can 
justify
anything.
2.      There is no technical nirvana awaiting the world. The new net 
billing system will be useful but not world changing. For cheap 
products freight is too expensive. Think price per kilogram.
3.      The global economy is overheated. Overheated economies always 
        fall into recession.    
4.      The American economy, which is the cornerstone of the global    
economy is related to the stockmarket, but not in the usual             cause 
and
effect way. The relationship is reflexive. A fall in            the stockmarket
can precipitate a fall in the underlying                economy (ie 1929) and 
vice
versa (not my thoughts - see Soros).
        Thus the many people who say that the underlying economy                
insures
against a crash don't know history. A collapsed         stockmarket changes
peoples wealth (obviously) and their    confidence in spending. Thus, if
you own a company on a P/E of   30, then the market crashes, then the
underlying economy      recesses and the earnings of this company half. This
puts it at      60 at your holding price. Hey, but suddenly the market is
only    pricing these companies at 10 times earnings. Now your stock 
drops to a sixth. This is A CRITICAL THING to understand.
5.      As per Point 2 ask yourself the question: Why do I go to a cafe         
to
have a cup of coffee when I could have one at home? If you      can
understand the human side of this question you will     understand why the
net can not possibly be as important as         people think it will be. If you
don't know the answer then read         some Steiner.
6.      Whenever dough is being made on the back of wild unproven hopes         
and
dreams you know it will end badly because right through         history that
has been the case. Unfortunately, the NZ                        MacDonalds 
schooling and
university systems no longer teach      history. There is       nothing new 
under
the sun as applies to   the market. There is a  real discipline involved
in ignoring the         BS and doing the right  thing. But very few can do it.
This is         because         we relate the   money directly to what it can   
        buy and
the power it will give us       with other people. That         thought is so 
sweet
that it keeps us in     the game long           after we should have packed up 
and
gone home.
7.      The longer this nonsense goes on the worse it will be. My               
opinion
now is that this will end unbelievably badly and I base         this on
mathematics rather than just feeling. Mathematically I          just can't see
any other outcome.

I hope these sobering thoughts get some consideration.

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