Are stocks in general cheap? I don't believe so. Of course stocks have come back to more reasonable prices but they are by no means really cheap for most of them. However, relatively speaking, stocks are indeed cheap historically. Why so? Right now, the dividend yield for S&P 500 is exceeding the 10-year treasury bond yield. This is a very rare phenomenon, which only occurred once or twice in the past 40 years or so. When investing in bonds, people are only looking for the fixed income, not capital gain or growth. For stocks, people are more interested in growth and gains. That's why usually bond yields are much higher than that of stock dividends. But now it is inverse. It means, comparing to bonds, stocks are historically cheap. This means, investing in stocks in general will be a good choice for the mid-term. However, with one caution. At the moment, it is rather uncertain in terms of the stock market direction. While either way is possible, I think the chance is more for a short term decline, potentially severe. The investors' sentiment is just too much bullish right now, which is usually not good. I expect a quick sharp dip of the stock market. If it happens, it is likely a good opportunity to get in for the next 6 months at least.
About three weeks ago I turned to be bullish on oil, when it was $91. I said it could reach $100 in the next few months. I was wrong. It has almost reached this $100 level in less than one month. It is just too far too fast. I think this kind of fast price appreciation is mostly related to the headline bullishness. If the headline news changes, oil will likely drop, also fast. I'm more bearish about oil now and actually I bought ERY, a leverage inverse ETF fund to bet against the oil sector. Of course it is a risky speculation.
By the way, I will be away for 2 and a half weeks. I'm not sure if I will have time or easy access to Internet to write blogs. If I cannot, talk to you again when I'm back early December. Early greetings to all of the friends for the Thanksgiving!
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