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The New Rhetoric Vs. The Old Numbers
By John Cunniff   Associated Press
NEW YORK — The roaring stock market has left in the dust many of the old formulas by which shares were valued, and left commentators futiley searching for explanations.

"The end days of the 20th century saw an 'end of memory' when it comes to stock market pricing," says Michael Flament of Wright Investors' Service.

While he doesn't spell it out, those vanished memories are about such things as price-earnings ratios, profits as a percentage of revenues, the rate of profit growth and so on.

Why list them all? Some of the stocks most in demand today have no earnings and no immediate prospects of them. And those that have earnings are priced so high that only big institutions, such as pension funds, can afford them.

"Don't bother checking for a precedent of 1999's stock market," says Flament, because "there is certainly nothing in U.S. market history remotely on a scale" with such a love affair.

Such rhetoric rather than numbers is perhaps the only way to respond to Harry Dent, who foresees 41,000 points on the Dow Jones industrial average or to Glassman & Hassett, who expect 36,000.

Faced with such explosive expectations, members of the old-line fraternities feel futile in countering with their ancient formulas, which would have them settling for gains of 10 percent a year.

And so they try simply to be descriptive, declaring that the ballooning in technology prices is a bubble. To which Russell Redenbaugh responds: "It's only a bubble if it bursts."

Redenbaugh, analyst for Philadelphia's Cooke & Bieler, an investment firm "committed to high-quality, low-risk investing," puts forth what sounds like the Alka-Seltzer explanation.

He concedes, for instance, that there will be a great many losers in technology, "especially among the dot-coms," but there will be many successes too.

The technology market, he explains, "is probably more like foam, made up of thousands of bubbles, which are always in the process of popping and reforming."

While old-timers, some of whom still remember the tail end of the Great Depression, think the new-market theorists are crazy, and that maybe mathematics is a bit berserk too, they are outnumbered.

Temporarily, the say. They have seen too many "new eras" in the economy vanish, having been little more than something imagined, something forecast, something so deeply desired it seemed real.

Referring to the economy rather than simply to the stock market segment of it, David Wyss of Standard & Poor's contends "there are few signs that this record expansion represents a 'new' economy."

Indeed, he adds, "this is simply the old economy tuned up and running on all cylinders," its one special feature being the stock market.

"Measured in any rational way — price-earnings ratios, ratio of market to book, or ratio of market capitalization to gross domestic product — the market looks ridiculously overvalued."

Sounds like an old-timer with a firm belief in the old formulas. Yes, but with a twist that seems to place at least one foot on the turf of the new rationalists.

"We have given up on a correction, and expect the market to remain overvalued," he confesses. "We now believe there has been a fundamental shift in the risk premium, rather than an irrational speculative bubble."

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