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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (5878)	8/25/1998 10:50:00 PM
From: Joseph G.	Respond to of 9980

<< thus somehow, the equation should also include the type of returns available on no growth "riskless" securities such as bonds>> One has to be very careful with this kind of thinking, as it nearly always lead to mistakes, including Graham himself. Two obvious problems: (i) nobody was ever able to predict interest rates in the future; so any valuation based on future expected interest rates is based on fantasies and nothing more; (ii) at low interest rates this idea leads to huge fluctuations in stock valuations, as it takes next to nothing for a bond rate to change from 1% to 2%, but would result in a factor of two drop in stock prices. And these ideas are not really relevant, since an earnings based stock "fair value" has enough fluctuations and uncertainty without any regard to bond interest rates. PS. You might have noticed that corporate bonds yield much more than T-bond, and the spread has widened recently - you should think why?

To: Zeev Hed who wrote (5878)	8/27/1998 10:49:00 AM
From: Chip McVickar	Read Replies (1) \| Respond to of 9980

Zev, Assoc Press carries a note that Moodies has just down-graded 2 Japanesse banks --- Ashi and Tokai -- from A2 to Baa1 This is essential 2 steps away from Junk Bond status..... Another part of valuation determinations requires accounting for "perceptions", and at a certain point...a mass psychological impressions will wipe out a years worth of stock appreciation. This is certainly true today in the broad markets of Russel 2000 companies or in the bioteck sector. International Currency instability is a powerful disease and the growing perception is that the IMF-etc's perscriptions are not effecting this new hybrid strain. It is very possible at some point there could be a total break-down in this "floating rate system"....although we are not there yet and probable quite a ways off. We may have to wait for the ECU weakness to play out and the y2k adventure... Chip Chip