Models based on so-called relative valuations have a poor track record in practice, having misled investors at several historic inflection points. Interest rates have virtually no impact on stock market valuations, but they may have transitory effects on stocks in the short term.
Last month, using Ben Graham's model, we found the U.S. market to be undervalued for the first time in about 50 years. Unfortunately, the values have become even more compelling over the past five weeks.
A look at the relationship between bond and stock yields as justification for today’s expectations of a continued bull market and for the current LBO craze. No evidence that Fed-type valuation models help forecast future market returns.
In the August issue, we examined the historical relationship of bond yields and common stock earnings yields, looking at it in terms of a ratio. In this issue, we make the same comparison in terms of a basis point differential.