The Eve of Destruction

Monday, October 18, 2010
By Paul Martin

By: Rick Ackerman
Monday, 18 October 2010

I have two long held and very strong opinions — one about the stock market and the other about the Treasury bond market. I believe that, before the secular bear market in stocks that began in 2000 runs its course, we will be lucky if we do not achieve lower valuation levels than were typical of previous secular bear market lows. That implies a 6% dividend yield and a P/E multiple of eight on the S&P 500. (And I mean the index as a whole — more on that later.) In addition, I believe that the Great Bull Market in bonds, which began in 1981, will end in parabolic fashion. The consensus will believe that inflation is off the table for at least a generation and deflation is a certainty. A 1.5% yield on a 10-year bond will be rationalized because, with 1% or 2% deflation, that’s 3% real! I believe the time is ripe for these two events to come together, providing us with a spectacular opportunity for a great gozouta and an even greater gozinta.

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