it is interesting to note...

[gapcap1]

It's actually quite simple: in unstressed markets, you would expect the dividend yield of stocks to follow bond yields (meaning as bond yields go down, the yield on stocks becomes more attractive relatively speaking, and stock prices move up to reflect that).

However, when investors begin to question the fundamental underpinnings of markets it is reflected in a shift away from riskier assets (lower grade bonds and stocks) and a shift toward safety, i.e., into government bonds. Which is what we're seeing currently.

So you can't always look at govies and dividend yields alone; spreads in other parts of the credit market may be blowing out (in a flight to safety move) and that tells you to be wary of ANY risky asset (in this case, stocks). This subtlety was missed by many who used the traditional "Fed Model" to purchase stocks in 2007-8 and got crushed.

yeah, timing is everything. but, anyone acquainted with the triumphal trip of dimson, marsh, & staunton would convince you that the 50,000 fold rise since 1899 in the index was not due to unusual anomalies related to expectations, but was due to the return on capital of 15% and compounding . such a compounding is particularly alluring during times when the earnings price ratio and the return on capital are so much greater than the long term interest rate, as would be consistent with theory and the Fed model. someone will eventually, put their finger in the dyke, and the market will be bought. it's one of the immutable laws still left standing.

[adam ali]

yeah, timing is everything. but, anyone acquainted with the triumphal trip of dimson, marsh, & staunton would convince you that the 50,000 fold rise since 1899 in the index was not due to unusual anomalies related to expectations, but was due to the return on capital of 15% and compounding . such a compounding is particularly alluring during times when the earnings price ratio and the return on capital are so much greater than the long term interest rate, as would be consistent with theory and the Fed model. someone will eventually, put their finger in the dyke, and the market will be bought. it's one of the immutable laws still left standing.

Don't disagree - only that a broader view of credit markets should be taken into account when using this kind of model