Greenspan, Fed Model Find U.S. Stocks a Good Value

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Oct. 24 (Bloomberg) -- In today’s “Chart of The Day,” Bloomberg’s Olivia Sterns reports on the value of U.S. stocks and how much room they may have to run. She speaks on Bloomberg Television’s “In The Loop.”

End of the question of with the government back up and running and the shutdown out of the way and particularly after tuesday's very disappointing jobs number, a lot investors aren't not betting the fed will take away the punch bowl anytime soon.

How much room do stocks really have to run?

Yesterday sara eisen sat down with alan greenspan, the former head of the fed, and he told her that even after this incredible for the half-year bull run we have seen in the market, the s&p of more than 160% since the trough, he thinks u.s. stock prices are still relatively low.

The average annual increase in stock rises throughout the postwar era yield was -- period was seven percent, so in a sense, what we are actually relatively low stock rises.

The so-called equity premiums are still at a very high level.

That means the momentum of the market is still ultimately up.

Greenspan's model is based on earnings estimates for s&p 500 companies versus 10 year treasury yields.

That means the higher the figure, the greater the potential return from owning stocks rather than bonds.

As of yesterday, the s&p was valued at a premium of 3.84 percentage points compared to 10-year bonds.

The average in the five-year bull run leading up to 2007 -- you can see it was just two points.

Even though the s&p 500 surged 159% since the trough, greenspan says it is not bubbly in any sense he can see.

We also heard from nobel laureate bob shiller last week and he thinks stocks are a safe bet as well.

He says stocks are relatively high-priced, but he say buy stocks versus the alternatives.

Using his adjusted price to earnings ratio which you can see, this compares average profits of s&p 500 companies over the past eight years.

He says the u.s. market is still not that overpriced like the way it was back of the thousand and looking at the alternatives, stocks should certainly be a part of your portfolio.

The ratio and debt last month at two point -- 23.7, the highest level since january of 2008. thank you so much, olivia sterns.

We have a great program ahead for you today.

Southwest airlines ceo is in the loop.

How the low-cost carrier is poised to take off with the rest of the airline?

And the ceo of chemical giant dow chemical joins us.

He is also a vice chair of the business roundtable.

We will ask them what ceo's a think about all the mess going on in washington.

A built film star jenna jamison a best-selling author.

-- adult film star.

We will take a look at her novel approach of boosting book sales.

We are just getting started on this thursday.

"in the loop" with betty liu will be right back.


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