I’ve said stocks are fairly valued, and my expectation of long-term yields and current stock valuations still justify that analysis. But like in George Orwell’s Animal Farm, some stocks are more fairly valued than others. I’ve looked into Warren Buffett’s picks for value ideas. But with so much cash to invest, he’s necessarily biased towards […]
Do rent yields follow other returns?
A few weeks ago I put together a graph on 10-year treasury yields vs. S&P earnings yield. For those of you tired of hearing how stocks are overvalued, or in a “bubble”, you can take solace that there’s a reason stocks are valued as they are. P/E ratios are tightly, inversely correlated to 10-year treasury yields. […]
Not in a bubble, yet?
This article in the most recent issue of the Economist seems to agree with the point I’ve been making for a while now, that stocks are fairly valued. The author starts by saying that the 1990’s tech bubble was, indeed, a bubble. I couldn’t agree more. Valuations went far beyond anything reasonable. The below graph […]
Four graphs of Warren Buffett’s top bets
With $106 billion to stash away, Warren Buffett’s Berkshire Hathaway (BRK-A) depends on making good financial decisions. If you’re a value investor and are fishing for good ideas, you could certainly do worse than to fish in the Berkshire pond as shown by this CNBC portfolio tracker. But for me, a table isn’t enough, so […]
Hoping for a crash
I’ve written a few posts on how stocks are fairly valued, or how you might be waiting forever for a crash. I’ve been derided as a wishful thinker, someone ignoring the reality of high P/E ratios and Fed easy money. First of all, there’s no way Fed policy could even be considered easy. No economic indicator […]
If the stock market crashes, the Fed has failed
Markets are on edge waiting for the Fed to raise rates. Conventional wisdom holds that the Fed’s easy money policies have inflated a stock market bubble. When they take away the punch bowl of low interest rates, the stock market will crash correct to long-term average valuations. To illustrate, below is a graph showing inverse […]
What the CAPE graph really shows: no, it’s not a bubble
The world’s most undervalued stock markets
Recently I’ve written about the inverse of P/E ratio (which I call corporate earnings yield) vs. risk-free return (government bond yields). As inflation expectations drop, interest rates also drop, and valuations adjust higher as investors expect less return on their investments. It’s a simple relationship (more below), and it shows that US stocks are fairly […]
Waiting forever for the next big crash
This was an interesting proposition from economist Steen Jakobsen: take 6 months off from the market. With the S&P 500 P/E ratio at 20 and the Shiller CAPE at 27, the market does appear historically overvalued. But stocks are a security like any other. You take the risk-free rate of return (10-year treasuries at 1.9%), add a […]