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Speech by Lacy Hunt


giofranchi
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So here's the question.  What do you invest in during a sustained low interest regime that will outperform treasuries?  Presumably there is low or no inflation in this scenario.  I believe that we are now in this scenario for a few years more, at least.  I cant know how stock markets will behave but I dont think Japan is a good example, as their market was hugely overvalued prior to the crash.  On the other hand I am not expecting new highs to come every day, either.

 

My thinking is that stocks must pay a dividend, and be able to increase the dividend each year.  In effect, they are leveraging available cheap money to operate with slightly higher returns somehow.  Return of capital has to be a premium consideration. 

 

Well run banks are probably good.  Borrow cheap, lend out slightly higher.

 

Real estate companies (REits) should probably do okay, at least on the dividend front. 

 

Buffett's IBM purchase is instructive I think.  He Bought a company that offers services in the info pipeline.  Telcos are probably not so good, with high capex. 

 

Insurers have to be well run.  Anyone who is underpricing too much will die a slow death, as will anyone who is overpricing.

 

Large companies that can borrow insanely cheap, maintain cash flow, and avoid obsolesence, all at the same time. 

 

This is a good mental exercise for the years to come.

 

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Nice one

More..http://www.hoisingtonmgt.com/pdf/HIM2012Q2NP.pdf

 

what did you think about view on execution based on conclusion to purchase of 30 treasury bonds ? @ around 3%  ? is the a men(or women) will never understand something if it job requires him not to. or is this another game or some different completely ? 

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I cant know how stock markets will behave but I dont think Japan is a good example, as their market was hugely overvalued prior to the crash.

 

I found some info here:

 

http://www.vectorgrader.com/indicators/price-earnings

 

Their market trades today at P/E of 23.65.  Their market is not expensive however relative to GDP, at 0.57x.  I take it that's the reason why their investors put up with the high P/E -- and perhaps also the chronically low inflation rate doesn't demand as much earnings yield.

 

 

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