ECRI

[unclemick]

And stock yields were considered totally 'puny' compared to bonds which peaked in the early 80's. I worked with a guy who buoght 30 yr bonds at 12% (82?) and still was struggling whether to buy 'some stocks' in the early 90's before we ER'd.

'right think' says yields have got to go back up after this long a slide. When is the question. (Glad I'm not Japanese - they're still on hold).

 

[cute fuzzy bunny]

But in that case, buying and holding a broad index would have paid you roughly diddley squat for dividends, yes?

 

[unclemick]

Dividend growth 4.5%, inflation 3.1% for the S&P 500, 1926-1994.

BUT- if you could fast forward yourself back to the 70's and early 80's you 'felt yourself' daily getting 'pooer' against inflation. Luckly, I was maxing my 401k into the S&P index/GIC's for 59 1/2 - the far distant future - and NO 401k loans in those days.

 

[Ted]

This one has been touted as a successful market timing indicator by none other than a fed economist:
http://www.kc.frb.org/publicat/reswkpap/PDF/rwp02-01.pdf

I looked at this and, in a nutshell, the strategy that it found to substantially increase returns above the return on the S&P 500 was this: to switch entirely into short term Treasuries whenever the interest rate on short term Treasuries rose to more than 100 basis points (1%) above the E/P ratio of the S&P 500 (based on trailing 12 months' earnings).  Essentially, this is a strategy of selling stocks when the market is greatly over-valued and destined for a drop, as signalled by tight monetary policy driving up short-term interest rates.  

I think that it has merit, although I would be reluctant to ever sell 100% of my stocks.  (Doing so can be psychologically bad when the market keeps going up for awhile and everyone else is celebrating!)

Right now, the short term rate on Treasuries is about 1%, and the earnings yield on the S&P 500 is 3.6%.  So according to this indicator it is a "safe" time to be holding stocks.

An important economic principle that this article did not address, but plenty of others have, is that the accomodative monetary policy that keeps short term interest rates low eventually leads to increased inflation that drives long term interest rates higher. That's why stocks are more attractive now than long term bonds.