To: BigMoney who wrote (81949 ) 9/23/2001 11:51:56 PM From: XBrit Respond to <<did barrons include any opposing articles in that issue?>> "While the stock market, interest rates and inflation were all rising together in the 1950s and 1960s, it was then believed that inflation was good for shares. The theory used to support that argument was that inflation would boost future earnings and that shares were worth more today because earnings in the future would be higher." "Yield ratios [as a guide to stock market value] have no economic basis. This is because shares represent the ownership of real assets, while bonds provide an income that is fixed in nominal terms. Shares should therefore provide a protection against inflation, at least in the longer term, that bonds don't provide. Changes in inflation thus cause [bond] interest rates to rise and fall, but there is no reason to expect such fluctuations to affect ... [stock] earnings yields. The ratio of bond yields to [stock] earnings ... should therefore vary with inflation, being high when inflation is high and vice versa."
