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'I EXPECT AN 8% TO 10% TOTAL RETURN'

Edward M. Kerschner has been plumbing the depths of the markets for 22 years and has been the chief investment strategist at PaineWebber Inc. since 1982.

ON STOCK MARKET VALUATION: ''The market is not a product of speculative excesses but a fair reaction to what's happening in the economy: slow growth, low inflation, low interest rates.''

ON HIS 1997 FORECAST: ''Because the market is already fully valued, I expect an 8% to 10% total return, which is in line with expected growth in [S&P] earnings.''

ON INVESTOR SKITTISHNESS: ''I'm nervous about the market, too. Those of us who grew up in a highly volatile economy, with high inflation and high interest rates, don't forget it easily.''

ON CYCLICAL STOCKS IN A LESS CYCLICAL ECONOMY: ''With a muted business cycle, there's less fluctuation in demand, which benefits companies with high fixed costs like autos, airlines, and retailers. Over a business cycle, they'll have higher earnings and with less volatility in earnings, the market will eventually award these companies higher price-earnings ratios.''

ON STOCKS TO AVOID: ''Commodity cyclicals like metal, paper, and chemical companies. Even though final demand is less volatile, we're still seeing big swings in commodity prices.''



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Updated June 13, 1997 by bwwebmaster
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