Enrique Diaz-Alvarez enrique at anise.ee.cornell.edu
Fri Mar 10 10:24:46 PST 2000

Rakesh Bhandari wrote:

> And so what if the profits are
> being cooked up? The profit illusion only makes it easier for foreign
> private investors to come to terms with the fact that they have no better
> place to go

A bit of circular reasoning here, don't you think? Do you really think that investors have no better place to invest than assets yielding 0.25% in more-or-less faked earnings? Your assumption throughout is that US tech companies are and will be superprofitable, so the sooner everybody gets it through their heads, the better. Two problems

1) There is really no evidence for this. If anything, previously profitable semi-monopolies (chips, PCs) are dissolving. A glut of capital investment will make it even harder to reproduce other profitable semi-monopolies. Profits as a % of GDP have actually peaked, in a fairly (gasp!) cyclical fashion.

2) Even if they do turn out to be superprofitable (doubtful at best), the market price expects them to be super-super-super-super-super-profitable. Relative valuation is still an issue.

Why do Marxists insist on assumming rationality rules in financial markets? It seems to me that there is a very simple explanation for the madness: people are selling anything that isn't going up, and buying into the ever-shrinking list of stocks that still are. Ever watch CNBC?

> Yours, Rakesh

-- Enrique Diaz-Alvarez Office # (607) 255 5034 Electrical Engineering Home # (607) 272 4808 112 Phillips Hall Fax # (607) 255 4565 Cornell University mailto:enrique at ee.cornell.edu Ithaca, NY 14853 http://peta.ee.cornell.edu/~enrique

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