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To: Bill Harmond who wrote (26220)	11/17/1998 12:59:00 AM
From: Tom D	Read Replies (2) \| Respond to of 164684

re: Rate Cuts and William's move to cash William, for about ten years I have been on the board of directors of the pension fund for my medical group. For the last 3 years, Smith Barney has coordinated the selection of our money managers and advised our employees on asset allocation recommendations. I have enormous respect for the folks at SB, especially in contrast to prior managers. In August 1997, they came to a board meeting and informed us that their bond model had produced an unequivocal buy signal. It seemed rather incredible at the time, the long bond had already fallen to the low 7 percent range, as I recall. They acknowledged that it seemed implausible to them also, but their model had called 11 of the last 12 major moves in the bond market correctly and they had developed the discipline of following this model. So, we dutifully passed on their recommended asset reallocation strategy to all our employees. Needless to say, this prescient recommendation created a lot of value for our pension fund. Anyway, they were in again to meet with us last week. Their best prediction is three more 1/4 point rate cuts before February. They see the long bond bottoming around 4 3/4%. They don't claim to be able to see the future, but barring the unforeseen, this is their most likely scenario. When the fed tightens the money supply, the large cap stocks tend to outperform other major asset classes. When the fed loosens, there is usually explosive growth in small cap stocks. In fact, the average small cap stock is expected to have an increase in earnings in 1999 of about 15%, and the average PE of small caps is currently only 16. For large caps in 1999, growth is expected to be 4 to 5% while the S&P's PE is around 24. Please consider factoring this into your investment strategy. My point in naming Smith Barney is not to give away the fruits of their labor for free. It is to mention that sometimes these large brokerage houses (which are the target of so much scorn on this thread) know more than us little guys. I am looking forward to having SB manage some of my money in the future (assuming I have some). Best Regards, Tom