william the wie
Gold Member
- Nov 18, 2009
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There are at least three different pricing models for the index funds often found in retirement accounts. These are:
CAPE. Robert Shiller's 10 year trailing average of price to earnings. This is the pricing model that indicates the S&P is moderately overpriced. (Try Wikipedia or just google for a more detailed explanation and criticism of this model.)
Stock to bond cash returns. The ten year treasury is currently paying out only about 40% as much as the S&P. Tax exempt municipals with investment grade bond ratings are paying even more aftertax returns. This is the pricing model that has the S&P mildly to moderately undervalued depending on how stock buy backs are treated.
Then US markets versus markets in the rest of the world this is the pricing model that is most affected by the rate hike that is expected to be announced tomorrow.
Tomorrow the minimum interest rate in the US is expected to rise to 0.25% which will have few domestic effects but will strengthen the dollar and make issues listed in US dollars. That means that hot money will be coming here to weaken the economies and markets of most of the rest world and cause quite a bit of volatility here. For example, guesstimates of the amount of Chinese hot money in the US estimates are that it could be in the low trillions. (McAlvany in his latest podcast claimed a trillion a year from the mainland that did not include non-US overseas Chinese hot money.)
CAPE. Robert Shiller's 10 year trailing average of price to earnings. This is the pricing model that indicates the S&P is moderately overpriced. (Try Wikipedia or just google for a more detailed explanation and criticism of this model.)
Stock to bond cash returns. The ten year treasury is currently paying out only about 40% as much as the S&P. Tax exempt municipals with investment grade bond ratings are paying even more aftertax returns. This is the pricing model that has the S&P mildly to moderately undervalued depending on how stock buy backs are treated.
Then US markets versus markets in the rest of the world this is the pricing model that is most affected by the rate hike that is expected to be announced tomorrow.
Tomorrow the minimum interest rate in the US is expected to rise to 0.25% which will have few domestic effects but will strengthen the dollar and make issues listed in US dollars. That means that hot money will be coming here to weaken the economies and markets of most of the rest world and cause quite a bit of volatility here. For example, guesstimates of the amount of Chinese hot money in the US estimates are that it could be in the low trillions. (McAlvany in his latest podcast claimed a trillion a year from the mainland that did not include non-US overseas Chinese hot money.)
