Re: 1929 deja vu

From: Max More (
Date: Mon Apr 24 2000 - 12:44:22 MDT

At 02:00 AM 5/24/00 , Forrest Bishoop wrote:
> > On the other hand, at 9 days into the 1929 series above the index was
> > down 30%, while NASDAQ is only down 20% over the previous nine days.
> > That's a pretty significant difference, especially in terms of market
> > psychology.
>I agree that the current situation is not like 1929- today's bubblicious
>stock mania, massive credit creation excesses, consumer and corporate
>debt loads, current account deficit, real estate inflation, surreal
>government statistics, fraudulent accounting practices in technology
>firms like Lucent, Intel, IBM, Microsoft, etc., gold banking implosion-
>in-the-making, bank derivatives exposures (ala LTCM writ large), and
>so forth ad nauseum make the crash/depression of 1929-1939 look like a speed

I couldn't disagree more. The strictness of accounting standards is much
tougher now than then. There are problems, but they are problems that
probably understate* the value of companies. For instance, more and more
value is in the form of hard to measure intangibles. There's a lot of
literature on this that I could suggest. (Do a search for Baruch Lev for
starters. What is this about consumer debt loads? You mean the $21 billion
dollars in cash held by MSFT, or the huge amounts at other companies? Today
is also unlike 1929 in that Greenspan would never let the money supply fall
by a third as the Fed did back then, turning a stock market crash into an
economic depression.

>Well, that is Federal Reserve Corporation's party line. It is
>all you will hear on their media. Let's have a look:

You just have to look at the names of the URLs you give above to see that
they are hardly objective, disinterested sources!

>I find it rather simple. If a company loses money consistently (,
>, cooks the books (Lucent, Microstrategy, etc.), has a P/E
>in the hundreds or thousands (Yahoo!, Cisco, MSFT, etc.)- meaning it
>will require hundreds or thousands of years to pay for itself, then
>that company is grotesquely overvalued.

Forrest, at least get your numbers straight. MSFT's P/E (*before* today's
17% haircut) was a mere 47. And remember, that's without backing out $21
billion in cash holdings (Not to mention a similar amount in unrealized
investment gains.) Yes, Cisco is pretty expensive, but it's also positioned
at the center of the New Economy and continues to grow rapidly. Looking at
very high P/Es of a Yahoo in isolation is meaningless. It's forward P/Es
and PEG ratios that matter. If a young company has just made a small profit
but is growing rapidly, an astronomical PE can fall very fast looking ahead.

I disagree with most of the rest of your post, but that's all I'm going to
comment on for now. This thread would probably be best suited to the
Investing in the Future forum.

Max More, Ph.D.
President, Extropy Institute.
CEO, MoreLogic Solutions. or

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