Re: The New Economy

["J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>]

      I think I posted this to pkt before.  But in case I didn't
I recently read that only about 20% of companies listed on
the NYSE now actually pay dividends.  So much for present
value formuli.
Barkley Rosser
-----Original Message-----
From: ÁÎ×Ó¹â Henry C.K.Liu ¹ù¤l¥ú <hliu@xxxxxxxxxxxxxx>
To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
Date: Thursday, April 06, 2000 7:45 PM
Subject: The New Economy


>In the 60s the notion: "income is all" was generally accepted by
>economists.  Then the notion was replaced by "money matters."  For the
>past decade, the market has been quietly adopted a new strategy based
>solely on capital gain. Income, afterall, was not important.  Dvidend
>return dropped from the norm of 5% to 1.5%.  Many blue chips even
>suspended dividends in favor of higher share prices or stock splits.
>The cost of money also seems irrelevant, as Greenspan, his red face
>disguised by straight face, repeated issues profound statements to
>explain why the Fed has become a side show as far as Wall Street is
>concerned.
>It seems now the only operative investment strategy is to shoot for
>capital gain by buying into growth.  If the investor needs money, sell
>some growth shares and be taxed at the lower capital gain rate.
>Evrybody's pension is now tied to growth investment. Even widows and
>orphans are advised by their trust fund finance planners to put their
>money in growth funds and forget about fixed income or dividend income.
>Better yet, borrowed against shares of rising value and hedge it so that
>the worse that could happen is to forego anticipated appreciation but
>still capture 100% gain for original investment.  The hedge is updated
>every six months.
>
>As for entrprenneurs on startups, here is the standard formula that has
>been operative for the past 4 years.  Start with a $300,000 intial
>investment, either from angles or friends and relatives, each putting in
>say $5,000 to $50,000. in exchange for a cummulative 10% of the share.
>The company is then valued at $3 million.  Twenty year old college
>dropouts are now Chairman and CEO of $3 million startups.
>Three months later, executive a first round funding by  selling another
>10% for $3 million to a venture capital source. The company then has a
>market capitalization value of $30 million.  Second round fund fund a
>year later brings in $30 million for another 10%.  The company now has a
>market cpaitalization valued at $300 million.  IPO a year later, selling
>another 5% for 150 million, with a capitalizaed value of $3 billion.
>Meanwhile the companied had a ccumulative negative cash flow of $100
>million in less than two years.
>35% of the company is now in public hands, with 50% distributed to
>founders and early management and employees.  Another 15% is held as a
>strategic war chest worth $450 million at IPO and possible seveeral
>billions dollars with a bit of luck and much hype, enough to buy a brand
>name in the old economy.  Meanwhile, the founders and early investors
>will hedge part of their holdings with their friendly bankers at second
>round valuation.
>
>The general message of the White House Conference on the New Economy
>yesterday was that this is only the beginning.  The joy ride will go on
>forever.
>
>Henry C.K. Liu
>
>