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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: marginmike who wrote (91388)4/7/2001 7:16:55 PM
From: XBrit   of 436258
 
<<I just lose my top evertime someone says stocks are so undervalued, based on treasuries model's>>

Me too. Everybody here should read Chap. 24 of Smithers and Wright's book, "Valuing Wall Street". They totally rip apart treasury-based stock market valuation models.

Salient points:

1) Over the 128 years from 1871-1997, the correlation between treasury yields and stock earnings yields is 0.08, which is as near as dammit to saying "no correlation whatever"

2) The models appeared to work during the 1982-2000 bull market largely by coincidence.

3) During the previous secular bull, 1950-1968, the relationship was exactly the reverse. Bond yields rose steadily from 2% to 12% over this time, while stock earnings yields fell steadily from 8.5% to 6%. (see Fig 24.2)

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