Blackstone heavyweight and noted lothario Byron Wien is out with his latest monthly Market Commentary, and it’s pretty bearish.That’s in contrast to his recent call for the S&P 500, which he said should reach 1500.
While he maintains this bullish near-term call, for everything after 2012, Wien sees a mess:
“I have been forecasting higher rates for some time and been wrong. I do believe that we have reached an inflection point and that 10-year Treasury rates will move higher between now and year-end, perhaps reaching 3%. The question is what impact that will have on the equity market. For a good part of my career I maintained a “dividend discount model” similar to the so-called Fed Model (mine came first) that related the fair value for the S&P 500 to the 10-year Treasury yield. The model served me well into the late 1990s when it showed the market to be egregiously overvalued.
“In the new millennium, however, when fear around the world drove the 10-year yield to what I considered aberrationally low levels, the model broke down. Whether it ever becomes operative again is uncertain. Based on the principle that stocks compete with bonds, it would argue that today the S&P 500 should be over 2000. There is an overarching view among investors that the market is mean-reverting, so perhaps the model will someday work again, but I am sceptical.
“I think the future will be different than the past and that we are in for a prolonged period of slow growth and deleveraging while the federal deficit is brought down. That may mean more modest returns for equities in future years, but for 2012, I still believe we have higher highs ahead of us. Apple paving the way for a greater focus on dividends will help the indexes move ahead.”
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