Do you remember the "Fed model"? It proposed that equities would be valued fairly if their price-earnings ratio (P/E) was about the same as the inverse of 10-year bond yields. Because even the US Treasury yields have dropped to 0.8%, the Fed model suggests that a P/E ratio of 125x would be fair. It sounds crazy, but maybe it explains at least in part why the P/E ratio of the S&P 500 has risen from 12x to 22x since March 23, 2020. It shows that equities remain more attractive for the long term than cash.What's more, investors should never doubt the power of the famous "Fed puts." Since the 1980s, all presidents of the Fed have boosted the equity markets at just the right moment. The same was true this year with the largest put on record: the "Powell put." It is America's answer to the deepest recession since WWII, and is likely to keep interest rates and returns on the capital markets low for years to come. All capital markets and their investors will benefit from this over the...
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