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To: Patrick Slevin who wrote (15754)	10/27/1998 3:32:00 PM
From: Will Lyons	Read Replies (1) \| Respond to of 17305

When the rate goes down the value of existing paper goes up because the relative yield goes up. If you own a bond that pays 6 per year and the new paper is issued at par butonly pays 5, then the old bond will go up so that it yiels the same rate, i.e. 5 cant edit as time rujnuning out During the depression of the thirties the rate was very close to zero. Stocks went down not because the rate went down but because the earnings went to zero or even lowe so that even a very high p/e times zer was still zero. Only those bonds and a few stocks that were able to maintain income and payments kept value. Those that fell by the wayside did so because had no yield [or the threat of having no yield] thus the deflation caused the losses of yield while raising the vaalue of anything that ws sound enough to continue to yield hope this helps

To: Patrick Slevin who wrote (15754)	10/27/1998 9:12:00 PM
From: Will Lyons	Read Replies (1) \| Respond to of 17305

Sorry about the messy post but my allotted time was running out. You have raised a question that does not have a simple answer. By changing interest rates the Fed effects the present vallue of a stream of income. If the stream of income is considered to be certain ? as in the case of treasury paper, then the present value moves in the oppposite direction than the change in the interest rate, but if the stream of income is not certain but thought to be subject to fluctuations in business, then perhaps a drop in the interest rate may be the reaction to a recession in which case the expected stream of income melts away and eeven tho a dollar of future income may be highly valued, the low, or even negative expectations results in low present value. If interest rates are lowered while the expected stream of the future does not come down too much then the increase in the p/e may more than make up for the decrease in the expected future. At present the iffy part is that because interest rates have been kept rather high relatrive to the rate of inflation [some think rates have been too high and that the Fed was less concerned with getting to a fully employed economy than with the possiblity of inflation ] perhaps the economy will have been slowed down too much so that businesses will not respond to the lower rates by investing more. After all if business is slow why borrow to expand? So that is the dilemma we now face. Please excuse the length of the senteces. In economics all short sentences are wrong, including this one. Will lyons