Tuesday, January 22, 2008

The biggest bull around

could be Brian Wesbury:
To determine fair value for stocks we use a
capitalized profits approach, taking government figures
on profits based on corporate tax filings and then
discounting those profits with a 6% 10-year Treasury
yield. We use a 6% 10-year yield because we believe
bond yields are being held artificially low today by the
Fed. By using a higher bond yield than necessary as a
discount rate, we are taking a conservative stance.

This model suggests that the market is undervalued
by 25% today. With the economy picking up steam in
2008, our forecast is that the Dow moves up as well and
our year-end 2008 forecast is 15,000, with the S&P 500
at 1625.

Once recession fears prove unfounded, US equities
will soar. Those who maintain their appetite for risk
will be richly rewarded sooner than they think.
He's right more often than not; I hope he's right right now. But I'm keeping plenty of powder dry; I suggest you do the same.

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