Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Microsoft Corp. - Moderated (MSFT) -- Ignore unavailable to you. Want to Upgrade?

To: Dave who wrote (718)	10/25/2002 5:17:15 PM
From: David Howe	Read Replies (1) \| Respond to of 19789

I disagree due to the fact that interest rates and inflation are so low at this time. Two options: 1. Buy a 30 year bond yielding 4% with no potential for that yield to improve. 2. Invest in a company with $300bil market cap and cash flow of $12 bil per year (equal to a yield of 4%). Consider that over long periods of time that cash flow has increased and should continue to increase. The bond is lower risk, but the company's cash flow has proven to be very resilient and the yield is likely to increase, particularly over long periods of time. With low interest rates you end up with higher PE ratios simply because stocks with higher PE ratios are better values than low yield vehicles available at that time. Here's proof (bottom right chart). For the past 40 years, this has been tracked. Average PE during low inflation is around 25 to 30. During high inflation (ie. 15%) the average PE is around 8. pegasusresearch.net