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Yield v Reason

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DOW JONES dollars

QUESTION: I see all of these people calling for a major crash of 50%+. With interest rates so low and the dividends on the Dow twice that of interest rates, does anyone look at yield anymore?


Dow Jones Earnings Book Value 1937 1982 1024x508

ANSWER: I fully agree. The yield on the Dow Jones is 2.34%, which is about comparable the 10-year rate. Back in 1983, I presented these two charts that show the earnings and book value of the Dow Jones Industrials. The majority were calling for a crash and our computer warned of a Phase Transition and a 600% rise in the Dow. I was blamed for creating the takeover boom, but it was clear that the earnings were at least 5% and the stocks were trading out of a major historical low on price v book value. So earnings do come into the mix.