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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: MCsweet who wrote (16450)	2/17/2003 4:45:03 PM
From: Wyätt Gwyön	Respond to of 78715

I will find stocks to be much more attractive if my major alternative investment yields 3% rather than 10%. while i agree with you in general terms, the devil is in the details. i believe these attitudes are relative and subject to change. for example, you can drive long term interest rates down to 1% or less and people still won't buy stocks if they think stocks will go down. just look at Japan. when i consider the poor quality of earnings and the high level of legalized theft present among CEOs in American corporations, i wonder how people can have higher expectations here than in Japan, and yet they do. on the other hand, you can have long-term rates 50% higher than the current 10yr US T and people will still flock to stocks (as they did in the US in 2000). on the other other hand, you can have the US 30yr T yielding around 2%, and margin rates trading at half the dividend yield on the SPX (meaning the market would be paying you money to use margin), and have the economy set for the greatest inflationary expansion in US history (and the worst 50 year bond market in US history), and yet everybody put their money in bonds in the early 1940s. sure, it was harder to buy stocks then, but it was also harder to buy them in the 1920s and that didn't stop people. on yet another hand, you could have stock PEs in high-single/low-double digits on honest earnings, with 30yr T yields working into double digits, and yet corporations would assume only 6% returns on their pension funds even though they could have locked in double that return just by buying US T's. that was the late 1970s. or they could assume 9% today when 10yr bonds are only 4%. if half their portfolio is bonds with 4% yield, then they need to assume 14% return on their equity portfolios even though 2002 GAAP finished at more than double the long-term PE for an earnings yield of around 3%--this shows how dumb corporate pension funds are, or how smart CFOs are for booking phantom pension profits "as allowed by law". back in the late 70s, and early 80s, people crowded into gold and other real assets as they feared paper. it was the best time of the century to buy stocks and bonds. nowadays, people love paper assets when PEs are high and yields are low. gold is still considered somewhat loony and is to be "ignored" like bearish posters as nothing but a knee-jerk reaction to impending war. what investments will people prefer in 15 or 20 years? the one thing we can be fairly sure of is: they will be different from today's preferences. the chances of tomorrow's winners being the same as yesterday's Nasdaq heros is close to nil imo. always dangerous to fight the last war.