What’s An Investor to Do? [NBC: 6-13-2011]

Subscribe for news updates every 10 minutes. Share this channel with others. Like/Dislike, Favorite, Comment, Embed on Blog, Facebook Share, and Tweet this video. Get the word out on this channel and video. Get 1 email of the headlines each day tinyurl.com Like on Facebook to get updates tinyurl.com Follow on Twitter to get updates tinyurl.com – Monday June 13 2011 7:55 pm en.wikipedia.org The ‘Fed model’ is a theory of equity valuation that has found broad application in the investment community. The model compares the stock market’s earnings yield (E/P) to the yield on long-term government bonds. In its strongest form the Fed model states that bond and stock market are in equilibrium, and fairly valued, when the one year forward looking earnings yield equals the 10-year Treasury note yield (Y10):The model is often used as a simple tool to measure attractiveness of equity, and to help allocating funds between equity and bonds. When for example the equity earnings yield is above the government bond yield, investors should shift funds from bonds into equity. The Fed model was so named by Ed Yardeni, at Deutsche Morgan Grenfell, based on a statement made in the Humphrey-Hawkins report of July 22, 1997 issued by the Federal Reserve that warned:The Fed model was never officially endorsed by the Fed, but former Fed chairman Allan Greenspan seemed to make reference to it in his memoirs: “The decline of real (inflation adjusted) long-term interest rates that has occurred in the …