Wednesday, May 04, 2005


A few days ago, in response to Random Roger's blog about HP, Roger and I had a good email exchange. In it I suggested that I would rather buy GM than HP. I should have posted the comment before today.

Kerkorian is tendering for GM shares at $31 per share. Like I keep saying, you ought to be buying US stocks before they are bought up by the big players. It is indeed a rare situation for the S&P earnings to be higher than the yield on the long bond; not future earnings but trailing earnings! If it were only projected earnings, one might dismiss the gap as over-optimism by the analysts. The actual situation is that the analyst are consistently under-estimating S&P earnings. In January the consensus forecast was for 7 or 8% growth in the first quarter. The final number appears to be about 18%!

Buy the big bull boom bubble before the bust. The market has four above average years ahead. Siegel and others suggest that the stock market will only average about 8 or 9% which is 4 or 5% above the long bond rate. This has been the historical average spread. There is also a long history of stocks earning 11% or better. There is room for a boom. Population trends are more important that is perceived by most money managers. Even if Siegel is right, 8 or 9% is better than other alternatives (resort real estate is doing much better but there is risk that this long run will end).