RE: The Politics of Recession

["John M. Legge" <jlegge@xxxxxxxxxxxxxx>]

Sven,

Stock price forecasting is not a very systematic business, but market
forecasting can be, and is mine.  I fitted a Bass curve to Amazon's figures
(three parameters, 11 data points, correlation 97%:

http://www.users.bigpond.com/msn/jlegge/amazon_predict.htm

to estimate the asymptotic level of Amazon's revenue, which turns out to be
$3.1Bn, leaving them very little growth left.  As a mature business I expect
the market cap to be around the same as the revenue (net margins
approximately the same as the bond rate, small growth premium); in Amazon's
case, the shares are worthless until $0.5Bn or so of debt is paid off and
net equity turns positive again.

p/e values may not be accurate predictors of stock prices, but a high p/e
surely indicates expectations (rational, exuberant or other) of high growth
to be sustained for a considerable period.  I don't think that there are
many genuine bargains available on the US stock market, and there won't be
until the indices lose another 50 per cent or so,

JML




> -----Original Message-----
> From: pkt-owner@xxxxxxxxxxxxxxxx [mailto:pkt-owner@xxxxxxxxxxxxxxxx]On
> Behalf Of Sven R Larson
> Sent: Friday, 22 December 2000 8:35 PM
> To: pkt@xxxxxxxxxxxxxxxx
> Subject: Re: The Politics of Recession
>
>
> "John M. Legge" wrote:
> >
> > Sven,
> >
> > I don't know how far the "new economy" stack prices must
> fall to become
> > bargains, put it could be a long way.  I value Amazon at
> under $3: it is
> > still trading at over $11.  Henry passed me some analysis
> suggesting that
> > Cisco is worth no more than $5: it is currently $38 and
> rising.  Microsoft
> > is $40 with a p/e of 22 and a friend in the White House;
> but if they start
> > paying their senior staff in money instead of share options
> there won't be
> > much profit left over unless they lay off lots of people in
> which case there
> > will be no growth left over.  Say "fully valued" at $20 - $25.
> >
> > Bargain hunting may soften the crash but I doubt if it can avert it,
>
> John,
>
> The use of p/e ratios to estimate stock prices has since long
> proven to
> be inadequate. It's more important to forecast how much cash that will
> flow in to the stock market, and here I believe the American
> economy may
> be in trouble, more so than the European. Many EU countries have
> implemented tax cuts or have such plans pending, and the
> combined effect
> can be significant on the financial markets.
>
>
> /srl
>
> --
> Sven R Larson
> PhD; Assistant professor of economics
> Department of Social Sciences, Bldg. 22.2
> Roskilde University
> Pb 260
> DK-4000 Roskilde, Denmark
> Phone: (+45) 4674 2910