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Category: Equities

Is the Fed Model a Good Valuation Tool?

Should investors use bond yields as a baseline to determine if stocks are over-or-under valued? If you believe in the “Fed Model,” your answer is “yes.” The model instructs investors to compare the S&P 500’s earnings yield (Earnings/Price, the inverse of the P/E ratio) to the 10-Year Treasury yield: If the Earnings Yield is above the […]

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“Lower interest rates justify a higher than average price-earnings valuation.” – Pundit You’ve heard the story before: Equity valuations are high… Interest rates are low…. Data sources for all charts/tables herein: Robert Shiller (http://www.econ.yale.edu/~shiller/data.htm) Ergo, high valuations are “justified” by lower interest rates. Why? Some argue that because stocks are the present value of future cash […]

The Nikkei Straw Man

A: Stocks are good long-term investments. B: Not if you invested in the Nikkei at the end of 1989. If you say something positive about investing for the long run or the magic of compounding, be prepared. A bear in the woods may suddenly appear, attacking you with their favorite straw man: the Nikkei. Let […]

Copper is said hold a PhD in economics, its price movements containing key information about the U.S. stock market and the economy. With the sharp decline in the metal of late (52-week low, down 17% YTD), many are suggesting this is a negative omen. Does the historical record confirm this assertion? Let’s take a look. […]

Gold Bugs vs. Stock Market Bulls

Which is the better investment: Gold or Stocks? It’s a battle as old as markets. Gold Bugs and Stock Market Bulls are equally fervent about their investment of choice, often with complete disdain for the other side. The story (since the gold standard was completely abandoned in 1971) goes something like this… 1972-1980 Gold Return: […]