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Wasn't the major impetus for companies to use cash for share buybacks rather
than dividend increases a statement by Buffet that doing so would allow
investors to put off capital gains taxes until they wanted to cash in their
chips? Does anyone remember when he made that statement? Buffet's words
are second only to Greenspin's in markets and they are numero uno for the
long-termers. Share buybacks make sense in the confiscatory capital gains
environment of today. But what if W gets elected and the vast right-wing
conspiracy maintains control of both houses of Congress? What if the cap
gains tax disappears? Would dividends come back into vogue? This would
shift long term investor emphasis back to stocks with non-zero yields. That
kind of shift it seems to me doesn't happen very quickly.
Kent
-----Original Message-----
From: DB <dbisnath@xxxxxxxxxxxxxx>
To: realtraders@xxxxxxxxxxxxxxx <realtraders@xxxxxxxxxxxxxxx>
Date: Sunday, July 23, 2000 6:46 PM
Subject: [RT] Our targets for the year 2000 are under 8000 for the Dow
Industrials,
We usually wind up each discussion with some attempt to show price targets
for the bear market. Today's view is perhaps the scariest we can offer.
The boundaries shown have provided investors with clear evidence of
overvaluation and undervaluation for at least several generations, from 1928
to 1994 (67 years). Suddenly in 1995, the commencement of the mania
provided two ways in which this indicator could go to extremes never before
imagined. One, corporations began spending the amounts normally devoted to
dividend increases to buying back more shares. In the process, earnings
tended to increase, and the increase became impetus for share prices to
increase, lowering yields even further. More importantly, as interest in
high technology companies increased, more and more increased in market
capitalization and were added to the S&P 500. Most paid no dividends at
all, forcing the overall S&P yield to move still lower. As our chart shows,
the old boundaries have not only fallen, they have fallen dramatically. The
S&P yield recently traded as low as 1.07%, way beyond the levels that define
an overvalued market. Even if we assume that the boundary that once marked
overvaluation should rightfully now be treated as the boundary that will in
the future mark UNDERvaluation, risk in the market extends down 62.5% from
current levels. This would equate to 4050 on the DJIA and about 1518 on the
Nasdaq Composite. However, we still believe what goes around comes around
and a return to "normal" is still in the cards, even if a few years away.
The true levels of undervaluation will probably be seen again someday,
hopefully not for many years to come.
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Our targets for the year 2000 are under 8000 for the Dow Industrials,
1085 for the SPX and 2500 for the Nasdaq Composite.
Thank you for viewing this site, which is usually targeted for an update
every five to six weeks. We expect to update next in the last few days of
August, but a summer break could conceivably delay the update for a further
two weeks until well after Labor Day. Comments or feedback about the
research shown at this web site is always welcome, but time constraints
prohibit any promise to respond. The volume of email has run consistently
high and we thank you for your interest and insights. For those who wish to
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