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.

Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Freedom Fighter who wrote (91)	3/19/1998 11:44:00 PM
From: porcupine --''''>	Read Replies (2) \| Respond to of 1722

<< If ROE returns to more average levels (above the long term average but lower than now) all bets are off. Returns will be lower and PEs should fall. Similarly, if rates and inflation rise PEs should fall and earnings will decline a little. If both should return to average levels: let's say ROE 15%-16% and inflation to 3%-3.5%, an efficiently priced market would tumble in a major way from here. (IMO) >> I have read that the historical norm for real interest rates is, roughly, 1/2% to 1% at the short end and 1-1/2% to 2% at the long end. Inflation is currently 1% to 1-1/2%, making real rates 4% to 4-1/2%. If the Market is not sufficiently pricing in risk, as Alan Greenspan says, how high should they be? If real interest rates return to historical norms, wouldn't that more than justify real earnings yields of 6% to 7% (which, as you know, is the norm for the real earnings yield, the norm for inflation being 3%)?