No, Just Clouds

Fareed Zakaria and Paula Throckmorton Zakaria

No, Just Clouds

Fareed Zakaria and Paula Throckmorton Zakaria

No, Just Clouds
An email conversation about the news of the day.
May 4 1999 4:18 PM

Fareed Zakaria and Paula Throckmorton Zakaria

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Dear Fareed:

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Productivity gains do not explain price/earnings ratios of 50. Think about what a price/earnings ratio is. The numerator is the stock price and the denominator is the company earnings per share. So if you have a p/e of 20, it means that the market (meaning the suckers who are buying the stock) think that the future value of the company is 20 times what the company is earning today. And a p/e of 20 is now considered low. No amount of productivity gains will make hundreds of companies earn 50 times their current earnings! Especially when there is downward price pressure in the technology sector. If you believe in today's p/e ratios, you believe that the earnings growth will come from new revenue sources, which doesn't make sense, since most of the world is in economic doldrums.

Forget fractions; something truly important has happened. "Nicole Kidman got naked for nothing," according to the front page of the Daily News. That is to say that she didn't get nominated for a Tony Award. What does a movie star have to do to get noticed in this town? It used to be enough to flash a little flesh.

I was relieved to see that David Hare didn't get nominated for any of his three plays. I still can't believe that the man who was one of the founders of agitprop theater--who took plays to coal mines to agitate the workers to rebel--actually accepted a knighthood.

No, Fareed, on thinking it over again, I've decided it really is a gloomy day.

Fareed Zakaria, Slate's wine columnist, is also managing editor of Foreign Affairs and a contributing editor of Newsweek. Paula Throckmorton Zakaria designs jewelry and writes occassionally for the Wall Street Journal and other publications. She was president and publisher of The Black Book, a photography journal and sourcebook based in New York.