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 (1479)	3/21/1999 2:09:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 1722

Some interesting things for investors to ponder. In light of the fact that much of the economic data is difficult to measure accurately, what is an investor to make of the inflation data? This is the reason I bring it up. My own studies of stock market history seem to indicate that there is a closer relationship between inflation and PE ratios than interest rates and PE ratios. Those relationships began to assert themselves in the 1960s. Prior to that there wasn't much of a relationship that I could find. More rigorous statistical studies made by the Federal Reserve came to the same conclusion and have been released in subsequent reports. Here's the problem. Bond interest rates at any given time reflect a known and accurate investment alternative. The CPI is a government calculated number that goes through constant revisions. The revisions are often made by looking at "trailing government calculated" data. Many economists can't agree on how CPI should be measured and what it should include. I've seen a lot of reports stating that CPI it overstated and a few stating CPI is understated. Each of the last two revisions to the CPI formula had the effect of lowering the CPI compared to the way it was measured in the prior version. So even if CPI is still overstated as most believe, it is probably understated relative to the measurements of the past. Bond interest rates have an inflation component to them. Yet we're not sure what the true inflation rate is now or what it is compared to the prior versions of measuring it so how do we know if "real rates" are high or low "really". What discount rate is appropriate given these issues. The bond rate + something? The inflation rate + a real rate? Average business selling prices? Other? Interesting things to ponder I think. Wayne Crimi