Wednesday, February 6, 2013

Are we still talking about the Fed Model?

Yes, but not in a very nice way.

A great quote:

The fallacy of the model is quite simple. THERE IS NO SUCH THING AS EARNINGS YIELD. The earnings yield is simply the inverse of the P/E ratio whereby corporate earnings are divided by the price of the market. However, as an investor in a stock you do not receive the earnings yield in the form of a cash payment.   However, YOU DO receive the interest yield from bonds.

If you don't know what the Fed Model is - you can check an earlier post on the subject.