The increase in the margin rate ( 保证金率 )from 50% to 70% was not an attempt to stem any rampant ( 猛烈的 )speculation on the part of the public-actually the market seemed technically quite strong, with public participation essentially dignified-but rather an attempt by the Federal Reserve Board to preserve the sound underpinnings that existed in the market. Naturally, such a move had a____1____chilling effect upon prices but if the FRB had been preoccupied with undue speculation, the increase might have been to the 80% or even 90% level. Such increases in the margin rate is a____2____of a strong stock market and since 1989, such increases have resulted in interim market highs over twelve months later. Obviously, there could be no____3____that this would once again be the case, but if history is any guideline-and if business and corporate earnings were to continue on the same course-continued optimism over the outlook for the stock market would seem more____4____than pessimism. The margin increase ____5____the good rise that stocks had enjoyed for the previous year-and the fact that a 50% rate was maintained as long as it was pointed up the fact that the rise was mainly conservative in that it was concentrated in the blue chips for the most part. In past Investment Letters we have___6____the thought that speciality stocks could outperform the general market from this point. We continue to believe that this could be the case. For example, steel stocks tend to sell at a certain fixed price/earnings ratio. Below a certain ratio they are considered good value-above a certain ratio,____7___. If a company produces a unique product, it is far more difficult for market analysis to place a numerical ratio upon the company's earnings. We have also contended in the past Letters that the stock market reflects mass psychology as well as the business outlook. When investors-both the public and the institutions-are nervous and____8____they definitely hesitate to buy stocks: they seek low price/earnings multiples and high____9___. These same investors-when they are in an optimistic frame of mind--become far less____10___ with yields and more willing to pay a premium( high p/e multiples)for accelerated growth. If the public's attitude towards the auto industry is any measure, then this period seems to have been one of optimism.