September 10, 1998

In July 1990, 10-year Treasury rates were about 8.5%, today they are around 5.25%. Lower rates-- the product of sound monetary policy, in our view -- have resulted in a lengthening of investors horizons, which has had a powerful effect on market valuation. A longer horizon, rather obviously, allows investors to incorporate into their valuation schemes events that are further in the future. The result is that investors become more patient. Since future profits now carry higher relative weights than current profits, market events that affect only the current economy will have a smaller impact on the financial market than on the real economy.

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