tag:blogger.com,1999:blog-11027528911364475.post3728540885708930354..comments2024-02-18T21:10:05.205-08:00Comments on EconomPic: On the Relationship Between Earnings and YieldJakehttp://www.blogger.com/profile/07946497592651234440noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-11027528911364475.post-87237751411072947922010-07-15T12:23:02.541-07:002010-07-15T12:23:02.541-07:00great insight and makes a ton of sense. if that is...great insight and makes a ton of sense. if that is the case, wouldn't that make it likely that the relationship should hold? <br /><br />if so... perhaps equities have some room to move.Jakehttps://www.blogger.com/profile/07946497592651234440noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-25554564668059185292010-07-15T06:52:15.614-07:002010-07-15T06:52:15.614-07:00Jake- When I started in the business investing was...Jake- When I started in the business investing was a lot less supercharged. Bank trust departments controlled money and they weren't very active. If pension accounts had 30% allocated to stocks they were seen as aggressive. Interest rates were somewhat controlled via "Reg Q" and commissions were high to do trades. Bonds were seen as steady but boring. Investment banks aggressively trading bonds wasn't a significant activity. Then it all changed with inflation picking up and technology leading the charge. Pension funds became accountable to their pensioners, bond prices dropped sharply and the DJIA finally broke through 1,000. All of these contributed to looking at stocks and bonds as competing asset classes and got people to look closely at their relative valuations. I believe these developements played an important role in the subsequent move in their relative yields.DIY Investorhttp://rwinvesting.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-72947656337314396322010-07-14T11:35:37.115-07:002010-07-14T11:35:37.115-07:00DIY- i get the inflation thing (inflation make bon...DIY- i get the inflation thing (inflation make bonds less attractive), but are you saying ERISA caused pensions to allocate more to equities due to "expected returns" that now flowed through their balance sheets / income statements?<br /><br />recent ERISA changes make long duration fixed income much more attractive than previous and could be a cause for a breakdown in the relationship going forward (i.e. bonds might get relatively more expensive than equities, which appears to have been very rich for quite some time).Jakehttps://www.blogger.com/profile/07946497592651234440noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-23206766474366138922010-07-14T10:36:57.066-07:002010-07-14T10:36:57.066-07:00This is a fascinating graph. I'm wondering if ...This is a fascinating graph. I'm wondering if it doesn't just reflect the possibility that investors started to see bonds as a competing asset class in the 1970s. That was a time when inflation started to pick up, bond prices became more volatile, ERISA was enacted and pension funds started to get more focused on their investing.DIY Investorhttp://rwinvesting.blogspot.comnoreply@blogger.com