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Strategies & Market Trends : Zeev's Turnips - No Politics
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To: TREND1 who wrote (7500)11/22/2001 12:05:15 PM
From: Steve Lee  Read Replies (1) of 99280
 
Thanks Larry,

While it is helpful to understand what the Fed valuation model is, it seems to require some assumptions:

1) Rates will stay the same
2) The stock or stocks you have bought will not suffer poorer earnings than expected at any point in the future.

The way I see it, neither of those assumptions are valid, so there is much more risk holding stocks than holding treasuries. Thus I can't equate the two without assigning a risk discount to the stocks.

Of course, your upside is higher in stocks too so some may prefer to assign an upside premium to stocks.

So it seems to come down to how you think the company is going to do wrt earnings, and how you think rates are going to look. In otherwords, you need to look at fundamentals.

Following the trend might statistically give you better returns than trying to find fundamentally undervalued stocks, but the Fed model doesn't hold water as an excuse to accept current valuations IMO.
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