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After a hearty Thanksgiving feast I am sure we are all familiar with that feeling. We loosen the belt a notch or two as we look at that lonely piece of pie and decide to give it a warm home rather then sending it off to Siberia.

The Dow and the NASD are in similar straits. They have risen quite nicely and should have been satiated but with the news on Friday ate that extra piece of pie.

The tummy ache that usually accompanies these types of activities can be quite serious, as are the remedies.

Dr. Greenspan and his cohorts will once again be meeting this month to decide the fate of the economy. I do not expect them to perform any remedial activity just yet as Y2K is at hand. It is difficult to increase interest rates and increase money supply at the same time, so they won't even try. But come next year - they may not even wait until February to hike. By January 14th, they may raise rates a 1/4 point, then again at their next meeting. The Economy is a runaway train and the rising Equity Markets are the Heavy foot on the pedal. The passengers on board are enjoying the ride, as the scenery zips by they don't realize there are no breaks.
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I don't find the prospect of a possible rate hike too daunting. The value of equities is determined by discounting growth by the marginal interest rates (the Fisher model.) So, if economic growth is robust, raising rates a bit to stabilize prices is OK.

Of course, if they overdo it, or if growth stagnates we could get a nasty wiplash effect. Still, I think Greenspan and the fed have done a pretty good job.

While my outlook may be OK for equities, it's not so good for debt instruments. So. perhaps there is some reason for concern.

GW
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Agreed, the nifty fifty cannot go up forever. The PE's of tech stocks are so high as to be unbelieveable--by Steve Balmer, by Alan Greenspan, by a lot of us. Still its the only game in town. "Momentum investing" and "Greater fool (small f) Theory" are in style.

The very Foolish index fund investing--keep buying regardless of price--is still a good strategy that avoids all of the market timing worries.

Yes, interest rates may drift upward, but not by huge amounts. Enough to give your bonds and bond funds some negative appreciation however--at least temporarily. But bonds won't crash like the nifty fifty might.
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Agreed, the nifty fifty cannot go up forever. The PE's of tech stocks are so high as to be unbelieveable--by Steve Balmer, by Alan Greenspan, by a lot of us. Still its the only game in town. "Momentum investing" and "Greater fool (small f) Theory" are in style.

Bear in mind that it turns out the prices on the original "Nifty Fifty" were not unreasonable for a long-term investor. If you had invested in all the stocks at the very top (the absolute worst time) and held on to them til now, you would have earned about the same as the market. (Perhaps a tenth of a percentage point or two less, I forget exactly.) Check out Jeremy Siegel's Stocks for the Long Run for the analysis.

Granted that a few of the companies were overpriced (notably Xerox), others beat the market handily. It also took several decades. We are, however, supposed to be long-term investors, right?

Never go on an adventure without a hat!
Indy

http://users.interconnect.net/indy/
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