Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why Stock Market Could Go 50% Higher From Here

Stock-Markets / Stocks Bull Market Oct 08, 2013 - 12:00 PM GMT

By: DailyWealth

Stock-Markets

Dr. Steve Sjuggerud writes: Most people don't get the idea I'm about to share with you... or they're not willing to accept it.

However, it's 100% true...

The idea is that value is RELATIVE when it comes to investments. And this concept is hugely important today.


Once you understand this, you'll see how the stock market could soar 50% or more from here.

Nobody is saying that now. But I think you'll be hearing more talk like this soon...

Let me explain... starting with a question…

Does 10% interest on an FDIC-insured bank CD sound good to you?

Today, you would say, "Heck yeah!"

It sounds good because relative to all the other investments, a safe 10% in the bank is fantastic.

But what if it were 1981?

Back then, it would have been a bad deal...

In 1981, you could find plenty of other investments paying more than 10% interest. Bonds, bank CDs, and bank savings accounts were all paying 12%-plus interest.

Why would you accept 10% interest when you could get 12%-plus?

My point is, value is relative to what else is out there... And today, it's no contest... The value is in the stock market.

Look... You earn zero-percent interest in the bank. You earn less than 3% interest if you're willing to lend money to the government for 10 years (which I am not willing to do!). Yet stocks today have a forward "earnings yield" of 7%-plus.

"Earnings yield" is simply the price-to-earnings (P/E) ratio reversed... It's the E/P ratio. The current forward P/E ratio is 13.7. The inverse of that is 7%.

We can use earnings yield to compare stocks apples-to-apples with other assets.

So what sounds best to you?

• 0% in the bank

• 3% in 10-year government bonds

• 7%-plus in stocks

Based on those three choices, the answer is obvious – you want your money in stocks. The relative value is just too good to pass up.

Comparing yields this way isn't perfect, of course. But it is a simple way to compare investments when you're looking for mispriced assets. And something is severely mispriced today...

Stocks shouldn't be offering a yield that's so much higher than bonds. Something has to happen to bring their yields closer together.

Either stocks need to soar (which would bring the earnings yield down) or government bonds need to crash (which would bring their yield up).

Let's say government bonds crash, causing interest rates to go from 2.6% to 5%. For stocks to have an earnings yield of 5%, they'd have to rise 50%.

Looking at it another way, if interest rates stay the same, stocks would have to more than double in value to push their earnings yield closer to what bonds are paying.

Remember, when it comes to investing, value is relative. And right now, when you size up financial assets, stocks win by a mile.

Good investing,

Steve

P.S. I think stocks have a long way to go from here… But eventually, we'll face another crash. If you had to start preparing yourself and your family for that crash… what would you do? What assets would you buy? No one can know the future with certainty... But a while back, I attended a closed-door meeting at the New York Stock Exchange... where details of the next stock market crash were revealed. For the full story, click here.

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2013 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in