Sunday, August 7, 2011

Contrary Market Signal Flashes?

I think we all know someone who is a great contrary market signal, who always seems to be on the wrong side of major turning points.  I'm thinking today of someone who was once known as "The Maestro" for his purported mastery of global economic and monetary policy.  That's right, Alan Greenspan.  Today on "Meet the Press" he said he expects stock prices to continue their declines and that U.S. Government bonds are safe investments.  

With the 10-year Treasury Note now yielding about 2.5% and blue-chip, multinational stocks yielding 3.5% or better, I think the stocks will be superior investments.  In ten years, that 10-year T Note will still be providing an income return of 2.5%, while the stock (assuming a 7% dividend growth rate) will yield nearly 7% and appreciate in value.  Or a drug stock, for example, that now yields close to 5% will probably offer modest income growth and even some capital appreciation over the next decade.

Finally, the "Former Maestro" said there will be no economic "double dip' but will slow down.  How much slower could growth be than the recently reported 0.7%?

Steve Lehman

S & P 500:  1200

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