Question: Are not earning yields the inverse of PEs? If that is the case both are related except one is inversely related. Am I missing something?
The typical relationship I was referring to in a previous blog is the following.
The market rises when earning yields are greater than bond yields. I studied this relationship in depth and I did not find it reliable. There have been times, for instance, when earning yields were much greater than bond yields and the market performed poorly for a protracted period of time. Some analysts try to read too much in this relationship.
The relationship discussed in the blog below, on the other hand, is much simpler. It tells you whether the market is expensive or not. I find this second relationship more reliable keeping in mind it does not provide "buy" or "sell" signals.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
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