valuations

[Jordan Hayes]

Grant, and many like him, are astonished to see "valuations" being
"high" -- but what they miss is that the circumstances of the market
itself have changed and not the "valuations" they are trying to
measure.  Somewhere along the way, they decided that some particular
p/e was "normal" and thus anything significantly higher was "abnormal"
as though these ratios were cast in stone.

	What's different about this technological revolution, perhaps,

	is that it has revolutionized speculation as well as commerce.

He's just mad because his abacus no longer works.

It's easy to simply say that because it's outside of the "normal"
behavior (as defined by these backward-looking-fellows) that it *must*
be "speculation" (as derogatory a word as there is on the street).
There's no 'law of stability' to count on; he can't explain why prices
are too high, yet he criticises those who can't explain why they think
prices are too low.  Feh.

---

I have a theory about all this: the role of the equity market has taken
a turn structurally.  Where dividends used to be the lure for a
shareholder to maintain loyalty through continued ownership (much like
a bond) now it's merely price action that's the "reward" ... so instead
of finding a way to make more profits in order to be able to raise a
dividend, you just have to look for a way to raise the price of the
stock.  In effect, companies have shifted the burden of keeping the
shareholders happy from the bottom line to the market at large: other
shareholders are now the engine for price action.  Sure, they have to
be fed with Great Expectations through marketing tie-ins, eyeball
estimates, and merger talks (as though the operation were '(a * b)'
instead of '(a + b) - delta'), but that's a whole lot easier (given
governmental tax policy and ever diminishing supplies of that rarest
commodity: floating stock) than making profits.

	Unique to this technological revolution is that the

	revolutionary product is not demonstrably profitable.

So what?  If profits, and thus dividends, are no longer the measure of
success, who cares if you're profitible?  Sure, you're saying: but how
will it end?  This surely can't go on forever!  But I ask: what has
ever 'gone on forever' ...?  The mighty railroads crumbled, steel was
sold to the low bidder ... what makes anyone think that *anything*
lasts?

Grant might just as well be saying things like:

    "In my day, we walked to school 10 miles in the snow"

    "When I was a boy, we treated our parents with respect"

and most tellingly:

    "Turn down that racket!"

/jordan