Friday, February 6, 2009

The death of equity

As soon as I read this headline I started feeling frisky. This is the kind of thing that tells you---chicken on the hill.

My personal belief is that market is going to take one last fierce tumble. The capitulation phase of this long term bear market that started back in 2000.

I am ready to buy tech stocks with both hands and both feet if this occurs. I will be buying the names that were all in vogue during the 90s. The big names plus some of the new kids on the block like RIMM and JNPR.

Bear markets usually end ugly. But when you hear all your friends saying they are selling all their stocks and will never buy a stock again---knock knock knock--opportunity.

Start maxing out the 401k and getting ready.

Imagine buying something like INTC at the equivalent price of 87 cents the day after the crash in 1987. That is the ticket.
clipped from
“Global equities have returned -29% this decade, compared to 80% from government bonds. We’ve seen two 50% equity bear markets in just five years. This combination of miserable returns and extreme volatility has led some to pronounce that, after 50 years, the cult of the equity is dead.”

Now, here’s where things get scary .Buckland observes that prior to 1960 US equities yielded twice as much as government bonds. At current treasury prices, that would imply an equity market yielding 6 per cent  and…

the S&P would need to fall by another 40% to deliver that yield on the current dividend base. In other words, the S&P would have to trade at around 500 points.

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