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Strategies & Market Trends : Roger's 1997 Short Picks

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To: Bearded One who wrote (6043)10/23/1997 2:16:00 PM
From: Graeme Smith  Read Replies (1) of 9285
 
The effect of Bond pricing is a little more subtle than Joe Average comparing equity to bond returns. Many valuation models are based on the return of buying safe, no risk bonds compared to high risk stocks. No matter what previous market performance has been, if the predicted future return (based on earnings and earnings growth) of the stock market approaches bonds, portfolio managers will start moving more money into low risk bonds. If the predicted return drops much below bonds, money will flood from the market to bonds, until this anomaly is corrected.
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