RE: The Politics of Recession

[larson@xxxxxx]

John,

If you're correct in estimating that the market needs to shrink 50% before
bargains appear, then the US economy (and world economy) is in deep
trouble. I have no reason whatsoever to doubt your results and
estimations, but I just think a lot of investors are forced by their own profit
goals to define "bargain" a bit differently.

/srl

Citat "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
>
>



--
Sven R Larson
PhD; Assistant professor of economics
Department of Social Sciences, Bldg. 22.2
Roskilde University
Pb 260
DK-4000 Roskilde
Telephone: (+45) 4674 2910