[adios]

"A while back I had estimated that the DOW should be worth approximately 7200 and the S&P 500 should be 775. But, now I think that it could even go much lower due to many factors. I have no estimate for the NASDAQ, who knows how low it will be since it is primarily made up of the businesses of the '90s."

A quick comment on valuations. Due to the wide, and I mean really wide, range of values for the equity risk premium prices can flucuate a tremendous amount. All it means to me is that prices are often determined by investor emotion. However, when companies sell at their net cash value or below and I'm not talking about book value either, it's hard for me to say that they are overvalued. True some may burn through all their cash but quite a few of these companies have very slow cash burn rates if they have any at all. I can see this response is getting kind of long and it wasn't meant to be. More on this in a separate post.

"First the employment report came out on Friday indicating a 3/10% gain in personal income. What is disturbing about this figure is the gain was based on employee overtime. Companies are still announcing layoffs and most have hiring freezes. SBC announced they will be cutting 11,000 jobs, so we see a further decline in the telecommunications industry. I've never seen the employment situation for new hires this bad."

Data from previous recessions would show that the unemployment rate peaked after the recovery was under way. Traditionally speaking, unemployment rates are actually low. Is the USA ecomony running at full production? No, however, if you look at the consummer (I know the real estate bubble blah, blah, blah), and the service sector, the economy is actually doing ok. The industrial sector is doing horribly but it represents something around 27% of production I believe. Business investment will drive job growth and business investment is slowly improving. Economic uncertainty i.e. economic risk has made companies cautious.

"The company I used to work for was deeply involved in the dot com venture capital business that eventually made them file for bankruptcy. They ended up liquidating and selling our services division to their competitor, who eventually consolidated and closed us down 6 months ago. Since, I had worked there for over 11 years I fortunately received a decent severance package, but the same is not true for my former coworkers."

I believe that the dot.com phenomona was a fraud perpetuated by Wall Street investment banks.

"My friend Bill who is a Network Engineer with years of experience called me Friday morning to tell me he has a new job. He now works for the federal government as a Security Screener at Midway airport for less than half the money he used to make as a Network Engineer. The whole point here is that there is very little hiring for technology jobs. Furthermore, other people I have talked to that are working are putting in a lot of overtime, or the work is just not getting done. Companies are afraid to hire due to the economic conditions and uncertainty. But, some recruiters are expecting the hiring business to improve in November."

I've worked in the technology area for many years and it is cyclical. Technical innovation drives growth in technology spending.

"My biggest complaint about our economy is the role the federal government is playing. So far, they have done nothing to stimulate job growth. They need to pass legislation to give companies tax incentives for hiring. This will help stimulate job growth. I believe this is the key for economic recovery. Right now, our government is preoccupied with elections and possible war with Iran."

I believe there has been legislation passed and enacted allowing for accelerated depreciation of a lot of cap ex spending. Fiscal stimulus takes time to work through the system. BTW I'm fairly certain that IRS depreciation schedules for IT equipment coupled with IT product price deflation is contributing greatly to the problems in IT spending.

"Speaking of Iran, the supply of oil is another problem. Right now the price of oil has a war premium priced into it, and could possibly go up to $40 a barrel if we do go to war. I currently believe that the price right now is too high making it expensive for companies to manufacture and transport goods. This cuts profit from companies and is a contributing factor to slow growth. An analyst that was featured on WebFN this week stated that every $10 per barrel of oil costs us 1% of GDP."

Ok.

"I know that a lot of financial analysts are expecting the fed to cut interest rates, but I see no point to it. Companies are not taking out loans for growth and expansion. All the cuts so far have not had much impact on business. Although, cuts have helped consumers refinance and buy big ticket items such as new homes and vehicles, but this is not helping the market."

I think it's more creditors are being tight with money for business borrowing rather than a reluctance to borrow by businesses. Estimates for GDP growth in the 3rd quarter are between 2% and 3%. Don't think we'll see further cuts if this continues.

"Consumer debt is at an all time high. How long will it be before they stop spending? "

In real terms or nominal terms? I really don't know. As far as the consummer throwing in the towel completely, past history and economic theory would say no.

"The risks of investing in the market are extremely high. I expect the market to erratically fluctuate until the situation with Iran is resolved. My advice for reentering the market is to look for companies that are not exposed to technology and telecomm. Furthermore, because this is a bear market, the best investments will be value investments. Look to buy companies with reasonable P/Es for their industry. I see no reason to invest in growth stocks when economic growth is near a snails pace. Lastly, due to the volatility you may want to wait out the Iraq situation. Invest at your own risk. I'll stay out of the market for now."

This is where I disagree. As prices fall I can't see how the risk of investing increases. IMO it decreases. More on the subject of PE's later.