Karl: Two comments, the 10 years bond is influenced mainly by two parameters, inflation expectations and temporary imbalances of supply and demand. You are right that inflation expectations will cause a down trend in the 10 years rate (but they will not go below the discount or overnight rates), on the other hand, if my scenario of massive selling of treasuries is borne out you will get two diverging forces, the first is a temporary spike up of the rates (too much supply of treasuries) the second is a lowering of expectations of earning for the S&P. Long term (6 to 9 months) you r model make sense but short term it is dangerous.
Finally, if you chose to go long, you should go with "unbroken" stock that are not particularly overvalued, suc as some drugs (I like MRK), some telephones (I like T), a beaten down stock, but not broken like BA. All these stock are relatively well sheltered from deflation in the rim. Going with technology and particularly with the Semi sector, will in my opinion be a mistake, because that is exactly where the deflationaryy forces are the strongest and the profit margins going to be squeezed. If you insist on a high tech there are some that are beaten to a very small premium to book, like WFR. Howvever, even this excellent company, I expect to buy in few months at bargain prices under book.
Zeev |
