Kass: Market Bottom Call (Part Deux)
In the "Fast Money" segment, I detailed multiple valuation models I use to assess the current value of U.S. stocks, all of which make clear that equities have incorporated a lot of bad news and are undervalued both absolutely and relative to fixed income:
It is also important to recognize the importance of the value of stocks relative to fixed income and inflation, as Zachary Karabell mentioned last night. I do:
- The risk premium -- the market's earnings yield less the risk-free rate of return -- is substantially above the long-term average reading.
- Valuations are low vis-a-vis a decelerating (and near zero) rate of inflation; indeed, the current market multiple is consistent with a 6% rate of inflation.
- A record percentage of companies have dividend yields that are greater than the yield on the 10-year U.S. note. At over 50% of the companies, that is nearly 5 times higher than in the peak of 2002 and compares against only 5% on average over the last 30 years.
I wanted to end this morning's missive by reclaiming some comments I made on RealMoney yesterday:Chicken Little has regained credibility -- my Twitter account beeps more than five times a day to report where Nouriel "Dr. Doom" Roubini is appearing and speaking. Nearly everyone can explain why the market has gone down and why it is unlikely to rebound, but hardly anyone can find a reason to rally. The business and general media, in marked contrast to the past, almost refuse to consider factors that can contribute to a sustained advance in stock prices. (It is even hard to find a bull on "The Kudlow Report" these days -- in marked contrast to the cheerleading that existed in years past.) It is important to recognize that only a handful anticipated the current credit and economic travail, nevertheless, the alacrity and confidence of a dire outcome in the land of the Chicken Littles is something for me to behold.
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