| jation 10 tne best earnings j which the subject companies have been able to record in recent years. Thus there is some evidence that current prices have rather fully discounted a fairly sizable earnings recovery that is not clear-i ]y within a forecasting range at this juncture.
But in spite of all this apparent justification for concluding that stock prices are high, it remains a fact that the market last week was strong. Any discussion of the reasons for the unusual strength must give recognition to another fact: the bond market was as weak as the stock market was strong. Attention to this contrast is significant: it supports other evidence that an inflationary flight of investment funds from the dollar and from long-term debt instruments I into equities is in full swing. And it appears that this movement is gaining momentum.</br></br>Under these circumstances, it is little wonder that so many people are puzzled by the apparent disregard of the stock market for earnings and dividends. Most of the time there is an understandable relationship between the prices of individual stocks and their earnings, earnings prospects and dividends, and also between yields obtainable from dividends of stocks and the yields obtainable from investments in bonds and mort-agages.</br></br>The recent deviation of stock price behavior from these conventional measurements, then, is unusualÛÓand meaningful from a broad national and international viewpoint In fact, some of the evidence presented above suggests that the present situation is more unusual in this respect than at any time since 1929, when the condition was spelling out a hazardous situation.</br></br>FEW PEOPLE WOULD deny the assertion that the demand for common stocks and the simultaneous disfavor j for bonds reflect an inflation psychology which seems to be ! increasing in intensity, it is a i ÛÏchicken and the eggÛ sequence, but, in addition to inflationary psychology, we also* have to recognize the presence of distinctly inflationary facts. Here is a list of inflationary facts that stimulate the inflation psychology, which, unfortunately, tends to enlarge the inflationary facts: Û¢	The Federal Government has to finance a 12-billion-dol-lar deficitÛÓmuch of it within the next six monthsÛÓand in | view of the weak bond market it is going to be difficult to accomplish this without enhancing the actual inflationary pressures.</br></br>Û¢	The aUrition in recent Government refinancing and other liquidation of bonds has increased sharply the supply of cash in the hands of investors who now seem to be in-clincd to buy stocks.