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——-.——— W—a-l(sntocn.-&–C-o-. Members New York Stock Exchange and Other Principal Stock and Commodity Exchange, OVER 100 OFFICES COAST TO COAST AND OVERSEAS TABELL'S MARKET LETTER August 16, 1968 Over the past few months, the course of interest rates has been a cause of much dis- cussion in the investment community. As most readers of the financial news are aware, the price of money was, in the early part of 1968, at its highest level since the early 1920's. New issue bonds of the highest credit rating were being offered to yield in excess of 7; govern- ments were at the highest levels in years, and a tax-free return of better than 5 in ably good municipal bonds was available. Building activity was being choked by astronomical- ly high mortgage rates, and the prime lending rate of major banks was at a record 6 1/2. This stringency in credit markets, the conventional wisdom informed us, was being imposed by the in.the absence.2f a In re- cent months, this rather dismal picture has changed dramatically. Bond prices have sustained one of their best recoveries in recent years, with the Dow-Jones 40-Bond Average increasing over 2 paints to its best level of the year. The tax increase, we are told, is going to lift from the shoulders of the Federal Reserve Board the burden of restraining inflation and those august gentlemen will, forthwith, be in a position to make credit more readily available at more reasonable prices. This activity has seen its reflection, to some degree, in the equity markets where, for the most part, recent leaders have been stocks such as building, finance, savings and loans and utility issues – all of which can be expected to benefit in one way or ., another from a lower cost of money. While there exist widely divergent opinions as to the , future course of stock prices, there appears to be a universal agreement that the bedraggled bond market may, at last, be headed for better times. Let us, for a moment, assume that this may be wonder just what effect better prices for senior securities i worthwhile, then, to e common stocks. ThE question may be answered in a number of ways. eh e out in the past, in this letter, there appears to be no discernible Ion w.2 r between bond and stock prices. Indeed, the two markets over t h s tc y to have moved in entirely independent cycles which are only rarely ta e . . suggested before, the bond . -market, as best-we' can'see'from , with a periodicity of some Thus, the last time we saw interest rates at current high levels wa i that point on bonds enjoyed a fairly con- sistent bull run almost steadil a 1946. Since that time the price of bonds has I s of this year. It is worth noting, parenthetically, l that the bond decline e g a n for some 22 years now, and it is fascinating to specu- late as to whether the ce rn may not be the beginning of another quarter century of de- clining interest rates. s discussion, however,we shall leave for another place. On a shorter-term basis there does, indeed, appear to be a discernible relationship between stock and bond prices,and if it is true that the bond market has, in fact, reached an in- termediate-term bottom, the conclusion, historically, is unequivocally bullish for stocks. In the past 20 years, within the context of the longer-term downtrend, there have been six major upswings in bond prices, everyone of which has unfailingly been accompanied by a better stoc. market. Also, without exception, the upward trend in stocks has perSisted well beyond the bond market peak, continuing for periods ranging from 7 months up to 2 years. The following table details the bond bull markets of the post-war era, and the course of the stock market at the same time. Date of Bond Market Low Dec. 1947 June, 1953 Sept. 1957 Jan. 1960 Oct. 1961 Sept. 1966 Date of Bond Mkt. High Jan. 1951 April, 1954 June, 1958 Mar. 1961 Feb. 1965 Feb. 1967 Advance in Stocks Over Period 36.2 19.0 4.8 8. 7 28.5 8.4 Date of Subsequent High in Stk. Jan. 1953 April, 1956 Jan. 1960 Nov. 1961 Feb. 1966 Sept. 1967 Mos. From Advance Bond Peak , in Stocks to to Stk. Peak Peak 24 62.0 24 95. 0 19 50.8 8 19. 1 12 42.4 7 22.8 Whether the recent low in bond prices was, in fact, an important bottom, is a question yet to be resolved. If, however, this was the case, the implications are distinctly encouraging for equities. ANTHONY W TABELL Dow-Jones Ind. 885. 89 WALSTON & CO. INC. Dow-Jones Rails 250.45 AWTamb This market letter Is pubh!hed for your convemence find informatIOn nnd Is not nn offer to sell or a soliCitation to buy Rny securatles diSCUSsed. The In formatIOn WRS obtained from sources 'ftC believe to be rehable, hut we do not guarantee its lccurac). Walston & Co, Inc. and Its officers, directors or employeeB ma)' have I1n lllterest in or pUl'chftBe and sell the IfeCurltlell referred to herem. WN801 ,L – . . . .