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Non-Tech : Bill Wexler's Dog Pound -- Ignore unavailable to you. Want to Upgrade?

To: JDN who wrote (6079)	1/14/2000 6:43:00 PM
From: DanZ	Respond to of 10293

Interest rates can affect stock valuations in at least three ways. One, at some point investors will substitute less risky interest bearing securities for stocks. Nobody knows the point at which bond rates become attractive enough to compete for money currently in stocks. The perceived rate of return on many technology stocks is so high right now that you might be right that rates have to increase a lot more before money will leave them. If rates reach a certain point, however, money will leave many tech stocks and move into less risky securities (either bonds, bills, notes, value stocks, or defensive stocks). Two, the discounted present value of cash flows decreases as interest rates rise. This lowers the theoretical value of stocks and should eventually result in lower valuations. This is normally effected through a contraction of PE ratios since cash flows may not be affected by rising rates. If this happens, value stocks should be less affected. Three, rising rates can increase the interest expense to many corporations. If rates go up enough, some company's earnings might take a hit. The most highly leveraged firms should get squeezed the most. Of course these are all theoretical arguments and may not actually occur in reality. I personally don't think that interest rates will go up much more so this entire issue might be moot. A nice three day weekend to everyone. Dan

To: JDN who wrote (6079)	1/15/2000 4:48:00 AM
From: Graeme Smith	Read Replies (2) \| Respond to of 10293

It's a weird market at the moment. My portfolio is currently extremely short (75% short, 25% long). Yet it is going up on up days, and down on down days. How a short portfolio can move in the same direction as the market is beyond me. My only theory is that the clever people hold the same longs as me, and those longs go up or down on important news relating to interest rates etc. The less clever people (who are long on all of my shorts) don't really understand whats going on. So they don't react with the rest of the market to interest rate news etc. Personally I am pretty sure that it is the clever people who hold my longs, and the less clever people who are long on my shorts. The rest of it I am less sure about.