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To: wlheatmoon who wrote (31736)	4/8/1999 5:59:00 PM
From: Bonnie Bear	Read Replies (1) \| Respond to of 86076

stock prices for pension plans and 401K funds are forward-looking one year in advance..and selection is based on future value of potential dividends and bond holdings... fair value is based on earnings relative to ten-year treasury bonds. Look on Yardeni's homepage for his stock valuation model. The S&P/DOW bloated hogs started taking on lots of long-term debt long ago...kept refinancing their debt and using the money to buy back stock (just like Joe Sixpack that refinances the house every time interest rates go down and uses the money for a new addition.) .Their bond offerings are figured into their stock price...so a company like KO can be modeled like they were bonds because there's so much debt. So as treasury yields go down (as they have since 82) the value of the hi-qual corporate bonds increase...and for the young turks who decided to model these like bonds for the pensions, the stock price increases. It all blows up big-time if interest rates go up. So this scheme can go on with more an more refinanced debt just as long as treasury yields go down. The problem is that the companies don't have the cash flow to service the debt... some of the high-yield stuff will default, corporate bonds for highly-leveraged companies will default, and people will rush to Treasuries pushing the yields even farther down. Numbers like Yardeni is showing make me think that some pretty big companies are going to use Y2K as an excuse to go bankrupt and default on their bonds. (Just think... if Goldman goes public at the all-time top of the market and goes bankrupt next year!)