Cheap Stocks Part Duex

The other day I suggested a good index for the relative price of stocks was Robert Shiller's S&P 500 price to earnings ratio multiplied by the 10-yr real rate on treasury bills.  When the index is much greater than one, stocks look expensive; when it is much less than one, stocks look cheap.

I couldn't easily construct a long series of that index because inflation-indexed treasuries haven't been around for a long time.  So I used the nominal t-bill rate instead.

But if I were using the real rate, today that index would be negative, because the real rate today on 10-yr treasuries is now negative.

Relative to throwing money away, earnings on the S&P 500 look real nice.

And with negative real rates extending over 10 years, I, like many others, lament our misplaced focus on debt and deficits.

Comments

Popular posts from this blog

Renewable energy not as costly as some think

Answering Matthew Kahn's questions about climate adaptation

Nonlinear Temperature Effects Indicate Severe Damages to U.S. Crop Yields Under Climate Change