Saturday morning, November 11, 2000

SPECIAL ELECTION CONFERENCE CALL: On Friday, Nov. 10, Mark Melcher, an
independent political analyst, and I discussed the likely consequences of
the Presidential election mess. You can listen to the rebroadcast at
www.yardeni.com/waf.asp.

DEUTSCHE BANC ALEX. BROWN'S TECH 2000 CONFERENCE: Watch this premier annual
tech conference live from Nov. 13-16. I will speak on the outlook for the
tech industry on Tuesday, Nov. 14 at 11:30 am (est). Register now at
www.webevents.broadcast.com/db/techconf1100/frameset.html.

COMMENT: In the latest Congressional elections, the Republicans still held
on to their majorities in the Senate and the House, but barely. Whoever is
the next President has no mandate whatsoever. The voters in their collective
wisdom have given us the most gridlocked political system in our nation's
history. This suggests that the country is evenly and hopelessly split into
two factions with very different agendas. Or else, the country is mostly
satisfied and prefers to veto both the Gore and the Bush agendas. I think
the latter is a more accurate interpretation of the Presidential and
Congressional votes. Obviously, this political stalemate could be a
decidedly bearish outcome, especially if the legitimacy of the new president
is questioned. More likely, the new president and Congress will seek out
common ground for bipartisan legislative initiatives. The stock market may
remain on the defensive until this outcome is clearer. In any event, extreme
policy changes are now almost certainly extremely unlikely. This should
ultimately be bullish for both bonds and stocks.

SUBSCRIBERS: For more of my thoughts on the election, see my latest GLOBAL
PORTFOLIO STRATEGY, which also includes my outlook for profits in 2000. The
latest EARNINGS WEEK reviews the significant drop in consensus earnings
expectations.

EXCERPT (Nov. 6 GPS): "Last week, I had the opportunity to speak at a
conference in Santa Clara, California on the impact of new technologies on
the real estate industry. While I was in Silicon Valley, I also stopped by
the Deutsche Bank office in Menlo Park. It is located on Sand Hill Road, the
West Coast's Wall Street for high-tech startups. The well-manicured road is
lined with the offices of venture capitalists (VCs). I am happy to report
that while the tech wreck in the stock market may have wiped out most
dot-coms, their financiers are alive and well. They are regrouping and
working hard to find and incubate the next New New Thing.

The VC phenomenon is a vital and unique aspect of the New Economy. The New
Economy is driven by a New Paradigm. The New Paradigm is actually a very old
paradigm called Competition. The most important characteristic of a
competitive market is that there are no barriers to entry. One of the
greatest barriers to entry is the availability of financing. The VCs have
virtually eliminated this barrier in the technology industry.

Of course, the Sand Hill Gang went too far over the past year. Money was too
easily available for any startup with a dot-com included in the company's
name. Early in their studies, economists are taught that in competitive
markets, marginal cost equals marginal revenue. The VCs gave away too much
money to too many harebrained entrepreneurs, and the result was probably
close to a zero marginal return averaging the many small losers with the few
really big winners.

The willingness of VCs and their limited partners to take on enormous risk
to finance entrepreneurs with untested ideas and innovations is a great
source of the New Economy's creativity, strength, and productivity. In the
past, entrepreneurs were stymied by the unwillingness of bankers to take a
chance on them. In the 1980s, Michael Milken revolutionized this process by
raising money for entrepreneurs directly in the capital markets. He invented
the concept of issuing high-yield bonds as an alternative to bank financing.
The VCs have taken this concept to the next level. Instead of entrepreneurs
searching for financing, the VCs are searching for entrepreneurs to finance.

Many of the VCs are relatively young, in their 20s and 30s. So are many of
the portfolio managers of the technology mutual funds. Just for fun, I often
ask these folks if they know what VC once meant before venture capitalists.
Most of them are stumped. During the bad old days during the war in Vietnam,
it stood for Viet Cong.

Today's VCs are also well trained in the art of the ambush. They are
constantly on the hunt for new-new companies that can put old new-new
companies out of business. They are today's financiers of the process of
"creative destruction," which was brilliantly explained by Joseph
Schumpeter. This means that no business is safe from competition. Indeed,
the most successful and most profitable businesses are the ones that are
most at risk from a deluge of VC money financing wanna-be competitors.

The bottom line is that technology will continue to be the most innovative
and the most
competitive industry, with great rewards and great risk."

Dr. Ed

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