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Re: [sharechat]

From: "Lindley Smith" <>
Date: Tue, 23 Jul 2002 17:02:22 +0100

I reckon we probably have to wait for 10yrs of non-performance in the
markets to get rid of all the individuals that have jumped into the mkt in
the last 10yrs and have unrealistic expectations about mkt performance, eg.
apparently many expect 20%pa returns forever.

Re your other points.

My recollection of the multiplier is that banks can lend out the money I
give them on deposit, but it is a bit hard for them to lend out more money
than I give them. I think you probably mean a multiple of the shareholders
funds, often it's 10 times plus, but depends on the 'bank'.

Static web pages, who uses them? What value would you put on Sharechat? I
guess the bosses at Sharechat may use your analysis when they negotiate
their staffs next pay increase (decrease in you opinion?). The age of the
s/w doesn't matter, much of the banking s/w in NZ is 30-40 years old.

Telecom may be in for asset writedowns, but the news stories seem to focus
more on AAPT than their copper. Cell phones use the airwaves and the price
of that is more than using copper so I can't see any writedowns to copper
coming until the cost of cell phones drops to the same level.

----- Original Message -----
From: "Christopher Scott" <>
To: <>
Sent: Tuesday, July 23, 2002 4:06 AM
Subject: [sharechat]

> Firstly a snippet from Allan Greenspan in 1996 when the DOW was under 7000
> - He warned of "irrational exuberance" in the market.
> Big question: Is it still there?
> My view: Absolutely !!!
> My Reasons:
> 1. If indexes do reflect the "value" of a market (this is open to debate)
> then what's the difference between 1996 and now? Not much I feel except
> perhaps one very, very significant thing - There is serious distrust in
> things reported. This distrust has now extended itself to the cornerstone
> of the markets - the big Life and Mutual insurers. You know the guys who
> own and manage the majority of stocks in the market and make individual
> claims like "400 billion dollars of assets under management". The question
> comes back to valuation - is this real value/worth or is it just on paper?
> 2. The multiplier effect. When you deposit $1 in the bank, the bank is
> able to lend, not just your dollar, but a multiple more based upon the
> "guess/prediction/bet" that you'll probably not need it for a while. The
> same can apply to corporations with over inflated share prices - they use
> the same principle - until the bubble bursts and their share price
> (if they're lucky, if they're unlucky ? Enron, WorldCom, etc). Now what
> happens if large number of people have used their shares as asset backing
> to loans? A serious contraction of the money supply and continuing
> recession? Central bank response: lower interest rates. It was enough
> 9/11 but will it be enough now?
> 3. Was it real growth between 96-2001? Or another way of looking at it is
> to ask the question: What has really been produced in the Dot Com era that
> was of real value? Billions of web pages built at highly inflated prices
> because of the severe shortage of trained secretaries! (No disrespect to
> secretaries intended it's just that with a couple of days training the
> majority of web sites could be developed and managed by secretaries).
> Static web pages are little more than brochures and should not be valued
> much more highly. No - the amount of real value created in the dot com era
> was actually quite small. Truly useful software takes a considerable time
> to develop and I'd argue that the entire process has been interrupted
> (slowed down) by the dot com era. Yea, yea, you can buy internet enabled
> software everywhere - problem is that it's underlying architecture is
> routed 7+ years ago and it (the software) doesn't even understand the
> complex relationships that can be enabled by the internet. In summary the
> question is: How many companies are valuing (or hiding) out-of-date,
> non-productive web investments as assets on their balance sheets?  Too
> I'd suggest!
> 4. The NZ Bourse: Is it really as immune as it appears to be? Nope - It's
> coming here too it's just that investors here are fooled by Telecom's
> apparent immunity to the forces that are affecting every other telco but
> Telecom dominates the NZSE40. My view is that Telecom needs to seriously
> write down its assets related to copper under the ground as it is
> under threat from the airwaves. There doesn't appear to be pressure to do
> this. Why not? I'd argue that setting up a competing network based upon
> wireless technologies could be done very quickly and inexpensively
> (relative to "assets" that telecom thinks it has in it's copper network).
> Or phased another way: How much of the $5 billion TNZ reports as assets
> will need to be written off to reflect it's true value? In Summary: If
> other companies are valuing assets like Telecom does, then their asset
> backing is overstated and they will be forced to right down these assets
> Telecom will probably be forced to do.
> Enough raving . . . Time will tell where the markets will go and whether
> (partial) analysis is correct.
> Anyone else got thoughts on where we'll be in 6 months time?
> NZ Bourse -  a correction coming? (Thank God we'll have Helen at the helm
> to deal with it - Bill can believe all he likes but I think he'd probably
> fall apart ;-)
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