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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: yard_man who wrote (6379)	1/28/2004 7:06:57 PM
From: glenn_a	Read Replies (2) \| Respond to of 110194

Hi tippet. Personally, I wouldn't compare today's interest cycle to the 1970's, but more the early 1930's. And I personally don't think interest rates are as important as the yield on financial assets (i.e. bond yield in the case of bonds, or dividend yield in the case of equities) required by investors as a risk premium. In the 1970's, the bonds yields soared (as eventually did equity dividend yields thru to 1982)to compensate for skyrocketing inflation (which ended up being reflected in interest rates). However, in the early 1930's, yields rose dramatically for most financial assets because of perceived risk to principle. If I'm not mistaken, yields (i.e. risk premiums) on U.S. government bonds remained low (because they retained their investment-grade quality - a state of affairs that sadly is not the case today, and even moreso with US agency debt), but the premiums on non-investment grade bonds soared. Similarly, the risk premium on equities was so substantial that at their top/low, the the average Dow stock had a dividend yield in excess of 10% (I'm going from memory on this one, not sure exactly what the dividend yield was, but pretty sure it soared from less than 3% in the fall of 1929 to double digits by 1932 on the Dow). I don't have any hard numbers at my fingertips as I write this e-mail, and am going from memory. So if someone has stats confirming or contrary to the above statement I'd appreciate the feedback. So I agree, this is NOT the '70s, but it IS very similar to the 1930's. With the U.S. being a cross between Great Britain and Germany of the early 1930's, and the U.S. of the early 1930's being a cross between Japan and China today. Is this a fair analysis in your opinion? Regards, Glenn