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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: DD™ who wrote (24)	8/15/1998 11:35:00 PM
From: Justa Werkenstiff	Read Replies (3) \| Respond to of 15132

Double D: Re: "I say this because many now believe, contrary to popular opinion, that lower interest rates mean LOWER STOCK MARKET PRICES. In the absence of inflation, lower interest rates mean a weaker economy and that means lower earnings. Lower earnings means Price-Earnings multiplier contraction and that translates into a lower stock market. The long bond broke out on Friday to the lowest interest rate ever on the 30 year bond. It is possible that we could see the rate on the 30 year bond around 5% within the next six months." Yes, I would say that was a much better explanation of your view and one that meets the high standards of this thread <GGG>. And as I have said on this board previously, I believe the market is, in part, factoring in recessionary fears. But there is nobody that I follow who is forecasting negative earnings growth as you suggest ("lower earnings"). Slower growth is being forecasted by some. But if profit growth slows, interest rates should decline even further as inflation fears are flat-lined and this should result in steady to higher P/E multiples according to the discounting of future earnings model. So if we get slower earnings growth we do not get P/E contraction as you state. We get a steady to expanded P/E instead. (Yeah, yeah I know we are at high levels there). Declining interest rates due to decreased recessionary fears are exactly the reason we have seen P/E expansion from 1973 to the present and there is no reason to suspect that the laws of the market have been broken. And I don't think Brinker has seen anything change in the past week which would force him to take a weekend off to review his timing model in light of your thinking, which is definitely interesting.