Outside the Box: Janet Yellen could be your new financial adviser

It’s ironic when a financial adviser says “Don’t fight the Fed.” After all, if investors are supposed to take investment advice from the Federal Reserve, then why do they need an adviser?

But that’s exactly what Charles Lieberman has done in a recent Bloomberg article arguing that stocks aren’t expensive now because low interest rates justify higher prices. Lieberman is defending the “Fed Model,” which compares the earnings yield (the inverse of the P/E ratio or E/P) of stocks to bond yields or, more specifically, the 10-year Treasury bond TMUBMUSD10Y, +1.12%

That means if bond yields go down — or, really, if the Fed pushes them down — then E/P should go down too.

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