A Barrons letter to the editor, bullish on stocks along the lines of the "Fed model" (comparing interest rates to earnings) (but, this guy compares interest rates to dividends).
Jon.
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MONDAY, APRIL 21, 2003
MAILBAG
To the Editor:
Randall W. Forsyth's column questioning whether stocks are cheap was interesting, but I don't get the same answer that he did.
For years, I have successfully used your Market Laboratory section comparing the yield on best-grade corporates with the yield on the stocks of the Dow Jones Industrial Average. When stocks yield better than 40% of the yield on best-grade bonds, the stock market is given a green light. When the yield on stocks falls to only 30% of best-grade bonds, then stocks are expensive relative to bonds and it is time to move to bonds.
A few weeks back, the yield on stocks ran up to 43.5% of the yield on bonds. The result was a 1,000-point rally in the DJIA. As of April 7, with stocks yielding 2.37% and best-grades at 5.95%, stock yields were still a very attractive 39.8% of bonds.
David E. Mersereau
Hartford, CT |
