Friday, August 26, 2011

The Best Buy Signal in 53 Years

(Investment U)

In the first half of the twentieth century, investors found that if you bought stocks only when the market's yield exceeded the yield on 10-year Treasuries, you would have been in for every single major rally.

.......As I write, the 10-year Treasury is yielding 2.07 percent. The S&P 500 yields 2.16 percent. Of course the S&P 500 Index was only created in 1957. It was the Dow that investors used in the first half of the last century. And the yield on the Dow is more than 50 percent higher at 3.24 percent.

If history is any guide, that means stocks are a terrific long-term "Buy" right now and Treasuries - which have become a complete bubble and a table-pounding "Sell" in my estimation - are due for a long period of underperformance.

True, GDP growth is likely to be anemic in the months ahead. But - shocking and surprising most investors - stocks (and especially dividend-paying stocks) should do exceptionally well.

There are no guarantees in the world of stock market investing, of course. But as Patrick Henry famously said, "I know no way of judging the future but by the past."

Good investing,

Alexander Green

No comments: