Forum Archive Index - April 2000

[Chris Darby <darby@ak.planet.gen.nz>]

Ril,

After initial resistance to reading yet another 'negative' post, I must 
admit to seeing your analysis and getting the point.  No I do not see it 
as being negative, more a well explored and thought opinion that will 
fall on mostly deaf ears.  Your delivery is a bit tough for some RIL as 
it counters the 'living in hope' mentality that permeates the minds of 
many.  Of course you will be dismissed as a doom demon like those that 
missed out on being invested in the last 18 months and have been strong 
on talking the market down.     

Fact is though, you are probably closer to the truth than anybody wants 
to know about.  It's a funny thing, bad news on the 6 o'clock TV bulletin 
rates through the roof, angst and suffering on radio captures our ears 
and a bloodied body on the front page of the daily increases circulation. 
 But your dose of reality check is dismissed.  It is dimissed out of 
fear.  Many are convinced the paradigm  present in the markets now is 
totally unrelated to history.  No it is not 1929 or'87 and when (not if) 
there is a major crash or correction it will not be the same.  It could 
be more or less devestating to it's own new millenium model.      Fear 
and greed are eternal partners and a little self examination now, as you 
suggest, might save more than one's butt later on.

As for me, well I will trade on with more awareness to the situation.  I 
owe not a dollar and am happy in my attempts to profit from the 
volatility.  Yes I own my greed, grapple with the fears and keep an 
extremely watchful eye.

Thanks for your contribution. 

Chris      


>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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