We’ve blogged repeatedly about our view that the investment community has yet to remark stocks based on a 10 year 2% risk free rate of return. We are now in a period of ultra low interest rates that is likely to persist far longer than conventional wisdom dicates. The Federal Reserve has a dual mandate of stable prices and full employment. The state of high unemployment today is far more complex than just the result of an economic recession. Baby boomers are for the most part not financially ready to retire and will be working far longer than most people would have predicted a few years ago. This will lead to greater competition for fewer jobs as the job openings usually created by this retirement cycle are not being generated in sufficient enough numbers to absorb the next generation which also happens to be the largest one population wise in 20 years. This will lead to systemically high unemployment and a Federal Reserve policy of maintaining low rates far longer than conventional wisdom anticipates. Thus many many stocks are very cheap when discounted back to these low rates. See our analysis to find out just how undervalued many well-known names are.
