From DailyWealth
Stocks "Extremely Cheap Now," Says Legend
By Dr. Steve Sjuggerud
Tuesday, May 5, 2015
"One thing you can say is, stocks are cheaper than bonds. Very definitely."
Legendary investor Warren Buffett was on CNBC yesterday, talking about stocks.
He said what I've been saying – for years.
He said that stocks are somewhat expensive today – IF these were "normal" times with normal interest rates.
The thing is, times are NOT normal today. Interest rates are not normal. They are near zero percent...
"I would've thought by now you would have seen much higher rates than we have now, which is essentially nothing," Buffett said.
"If these low interest rates prevail for five or 10 years, you'll look back and say stocks were very cheap. If interest rates normalize, you'll look back and say they weren't so cheap."
When interest rates are near zero, people are forced to look for other things to do with their investment dollars – like put it into the stock market. On the flip side, when interest rates are high, people will take money out of stocks and put it into interest-earning investments (like bonds).
Buffett doesn't like to make predictions about the economy or interest rates. He prefers to buy great businesses and hold them. However, the interviewer pressed him for his opinion on the future of interest rates...
He waffled a bit on his answer... But my interpretation is that he thinks rates will stay low for a few more years, at least, before ultimately going higher:
"It looks to me like they are certainly going to stay low as long as Europe keeps
following the present policies and Europe will probably keep following those
policies until they see their European economy come back fairly strong."
After saying that, Buffett said he would bet on higher long-term interest rates in the U.S.
My story – which I have stuck to for years – is that these are not normal times. My story is that the Fed will keep interest rates lower than you can imagine, for longer than you can imagine. And that will drive asset prices (like stocks and real estate) higher than you can imagine.
Read more from DailyWealth >>
Stocks "Extremely Cheap Now," Says Legend
By Dr. Steve Sjuggerud
Tuesday, May 5, 2015
"One thing you can say is, stocks are cheaper than bonds. Very definitely."
Legendary investor Warren Buffett was on CNBC yesterday, talking about stocks.
He said what I've been saying – for years.
He said that stocks are somewhat expensive today – IF these were "normal" times with normal interest rates.
The thing is, times are NOT normal today. Interest rates are not normal. They are near zero percent...
"I would've thought by now you would have seen much higher rates than we have now, which is essentially nothing," Buffett said.
"If these low interest rates prevail for five or 10 years, you'll look back and say stocks were very cheap. If interest rates normalize, you'll look back and say they weren't so cheap."
When interest rates are near zero, people are forced to look for other things to do with their investment dollars – like put it into the stock market. On the flip side, when interest rates are high, people will take money out of stocks and put it into interest-earning investments (like bonds).
Buffett doesn't like to make predictions about the economy or interest rates. He prefers to buy great businesses and hold them. However, the interviewer pressed him for his opinion on the future of interest rates...
He waffled a bit on his answer... But my interpretation is that he thinks rates will stay low for a few more years, at least, before ultimately going higher:
"It looks to me like they are certainly going to stay low as long as Europe keeps
following the present policies and Europe will probably keep following those
policies until they see their European economy come back fairly strong."
After saying that, Buffett said he would bet on higher long-term interest rates in the U.S.
My story – which I have stuck to for years – is that these are not normal times. My story is that the Fed will keep interest rates lower than you can imagine, for longer than you can imagine. And that will drive asset prices (like stocks and real estate) higher than you can imagine.
Read more from DailyWealth >>
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