tag:blogger.com,1999:blog-36918335.post116318508826987888..comments2014-09-15T01:49:36.187-07:00Comments on Best of Jim's Finance And Investments Blog: The "FED Model" theory of equity valuationJimhttp://www.blogger.com/profile/11817113605636408385noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-36918335.post-51466614192819814772010-05-21T03:21:53.525-07:002010-05-21T03:21:53.525-07:00This comment has been removed by the author.Alanhttps://www.blogger.com/profile/13173328169274190238noreply@blogger.comtag:blogger.com,1999:blog-36918335.post-88796950840986033002010-05-21T03:20:50.938-07:002010-05-21T03:20:50.938-07:00Tks. But how can the Fed model to predict or targ...Tks. But how can the Fed model to predict or target the next year S&P 500 index level? Also, is the Fed model the same as earnings yield gap model? Looking forward to your reply. TksAlanhttps://www.blogger.com/profile/13173328169274190238noreply@blogger.comtag:blogger.com,1999:blog-36918335.post-34607382278805617132010-05-21T03:17:13.382-07:002010-05-21T03:17:13.382-07:00Tks. But how can I use Fed model to predict the l...Tks. But how can I use Fed model to predict the level of next year S&P 500 index? Is Fed model the same as earnings yield gap model? Looking forward to your reply. TksAlanhttps://www.blogger.com/profile/13173328169274190238noreply@blogger.comtag:blogger.com,1999:blog-36918335.post-87969909672659694222007-05-31T10:27:00.000-07:002007-05-31T10:27:00.000-07:00Anonymous (10:05 AM), stocks are definitely riskie...Anonymous (10:05 AM), stocks are definitely riskier than bonds. the FED model has its limitations, in part, because it is very difficult to determine how much weight to give to the inhernet risk of investing in stocks.<BR/><BR/>Don't forget, however, that a 10-year bond, for example, provides a fixed amount of appreciation every year (if they are zero-coupon bonds, the is no interest paid every year - all gains are in the form of capital gains that can be realized by selling the bonds). If we think of this appreciation as "earnings," it is clear that the earnings amount of the bond does not increase every year - it is exactly the same amount. Stocks, however, normally have earnings that increase every year (except during recessionary periods), so one also needs to account for the potential earnings increases of stocks.<BR/><BR/>The FED Model is interesting because it is simple to use to make a quick comparison between stocks and bonds. However, it clearly has many limitations in its usefulness.Jimhttps://www.blogger.com/profile/11817113605636408385noreply@blogger.comtag:blogger.com,1999:blog-36918335.post-49007563614693300252007-05-31T10:05:00.000-07:002007-05-31T10:05:00.000-07:00If stocks are riskier than bonds, then the earning...If stocks are riskier than bonds, then the earnings yield on stocks should be more than the bond yield. Why? Investors need more, not less, return to compensate for the higher risk. Said differently, the higher risk asset class is always discounted at a higher rate, is it not?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-36918335.post-1169963634517690502007-01-27T21:53:00.000-08:002007-01-27T21:53:00.000-08:00I wrote a new post explaining why the FED Model in...I wrote a new post explaining why the FED Model indicates that the S&P 500 is undervalued as of Jaunary 26, 2007:<BR/><BR/><A>http://financeandinvestments.blogspot.com/2007/01/fed-model-updated-through-january-26.html</A>Jimhttps://www.blogger.com/profile/11817113605636408385noreply@blogger.com