Bond Yields Imply The Fair Value Of The S&P Is 750

Tyler Durden's picture

One of the less discussed topics by the propaganda machine is that with bond yields approaching record yields, and in the case of the 2Y below them, the S&P has no place trading over 1,000. There was a time when bonds and stocks would correlate, and as bond prices surged, equities would plunge and vice versa. Now that we live in HFT days where stock values are completely disconnected from fundamentals, and even the bond market, courtesy of the Fed's seemingly endless market interference,  it makes sense to extrapolate what the fair value of stocks would be implied purely based on bond yields stripping away for the Fed. Attached we present a very simple regression analysis between simple 10 year spreads and the S&P, and the 2s10s (steepness between the 2 and 10 Year) and the S&P. What both analyses indicate is that stocks are approximately 30% overvalued, at least based on historical regression patterns relying on yields to imply stock prices. Yet even though this analysis is purely statistical, here is a simple extension: with US stocks at about $13 trillion in market cap, if one assumes the suggested 30% haircut the result is $9.1 trillion in fair market value. Considering that the Fed has pumped $2.5 trillion in the form of monetary stimulus, and Obama's various fiscal stimuli now amount to just over $1 trillion, that explains the delta. Bonds are implying where stocks should be almost to the dot, absent the $3.5 trillion pumped into stocks by the administration and the Chairman. Fair value of stocks, when stripped away from the printer and Congress, is 750.

Below is a regression of the S&P to the 10 Year:

And this is a regression of the 2s10s to the S&P:

Both imply stocks are overpriced between 25 and 35%. And the Fed will do everything in its power for stocks to prevent going back down to their fair value of 750, which would nullify the entire impact of both monetary and fiscal intervention. Yet should it fail, look for the next $2.5 trillion in QE to push stock up once again to a 25% overvalued level compared to where bonds should be. Of course, should the Fed admit defeat and print, bond yields will likely drop thus resetting the baseline lower once again. We wish our Central Banking overlords all the luck in the world as the continues their attempts to fool US investors that stocks are even remotely fairly priced. We, on the other hand, will stick with the "alternative" central bank, which more and more are turning to - gold.


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Mako's picture

"We wish our Central Banking overlords all the luck in the world as the continues their attempts to fool US investors that stocks are even remotely fairly priced. We, on the other hand, will stick with the "alternative" central bank, which more and more are turning to - gold."

I wish all of you guys luck, there is no out, never was an out once you started this.   You'll probably start lending your gold out to get money for nothing and your chicks for free and start the process back over.  

"Same as it ever was"

"Of course, should the Fed admit defeat and print"

Actually, this would not be admitting defeat at all, when everyone just quits will be the sign that humans have admitted defeat.   Humans have no ability to beat the equation, they always lose the war.  Humans haven't admitted defeat, the system would collapse this second if they did..... they all still believe the lie.  It's much easier to believe the lie than believe the Truth, why? Because it would crush everyone's large delusions.

Ben's job is to keep all you lemmings walking straight down the road to Doom, when you stop the great pit opens up.  The only thing Ben can do is to try and keep you going in the right direction, there is nothing Benny and the Jets or Helicopter(whatever you prefer) can do other than influence you in the right direction.  Ben can't sustain an unsustainable equation and that is not his job, it's to keep you marching in the right direction as long and hard as possible until the system final conclusion of implosion happens.

Benny and Greeny have done an excellent job of keeping all you lemmings straight on the road, but when it's over it's over.  The fat lady has been warming up for nearly 3 years, she will be singing the loudest and most beautiful song ever heard by humans.

hack3434's picture

Benny and Greeny have done an excellent job of keeping all *you* lemmings straight on the road, but when it's over it's over.  The fat lady has been warming up for nearly 3 years, she will be singing the loudest and most beautiful song ever heard by humans.



So just wtf makes you immune to the global cluster fuck? I always read doom & gloom from your posts but never anything constructive nor insightful. 

Cognitive Dissonance's picture

I've long suspected Mako is an alien of the space variety and thus can leave earth's gravity well at will. Thus the "you" and "humans" usage. And it's much easier to strike out in anger and venom than it is to discuss solutions and even evacuation and disaster preparation. It's all part of the process of coming to grips with one's loss and grief.

When we face something we feel is unimaginable and horrifying, it's not uncommon to distance ourselves physically and emotionally from the thing that scares us. We then will feel safer pointing to it because we have emotionally isolated ourselves from the object we fear most.

This is evident by our usage of disentangled terms (you or humans for example) as if we are above and beyond the reach of that which we fear the most. Interestingly this attitude doesn't diminish a person's ability to analyze or examine the situation. Mako is usually very spot on with his views. Only they don't involve him from his point of view.

Cursive's picture


Holy shit!  You posted the Kubler-Ross steps.  Maybe Cheeky Bastard will call you and idiot and write a long, mindless bitchfest of a rant about all of the rants he has to read here.

Mako's picture

I never once said I was immune, but I sure and hell am not going to be down in the pits with the rest hacking away at each other over false delusions. 

All will be effected by the coming flood.

Cognitive Dissonance

I am not scared per se in a sense, my life is going to end one day either way.   I am not running from the Truth.  The only reason I don't USUALLY include myself is because I finally stopped listening to all the lies, no the Truth is not easy, but it is what it is, and I nor anyone else will escape it. 

I fear that after billions perish, nothing will be learned yet again.

We have choice, so why do humans continue to make the same choice that yields the same conclusion? Then bitch about the conclusion?

Either pick another choice and do the best you can with it or stop bitching about the conclusion of the other choice because you know what the result is going to be.

We have choices, but that does not mean we have ultimated choices, we have choices but that does not mean we have choices we like.

Cursive's picture


I've asked this question before and hack3434 is asking again.  We get your mankind-is-folly riff, but where, in your view, is that going to take us?  Are you suggesting one world government or some kind of SDR currency?  Will all dollars be worthless or just converted to the amero/SDR/other currency?  Just curious how you see this playing out.

Mako's picture

"is that going to take us?"

Global collapse just like last time, of course, it probably won't be nearly as pretty as the last one.  You are going to need quite a few Hilters to clear out the unfunded liabilities this time or probably a few generations if the slow route is taken.

"Are you suggesting one world government or some kind of SDR currency?"

It's going to be hard keeping the countries that exist today on paper together let alone all of them forming one country on paper.  

Cognitive Dissonance's picture

So what do you suggest someone do to protect themselves as best as they can while helping their family?

Mako's picture

I don't know if it's a suggestion but I would get away from all the people that are going to be hacking away at each other.  Being able to provide for one's self is never a bad thing.   If you can buy some Luck, you'll probably need some of that too.

It's kind of like picking which foxhole is best when the shells start falling. 

Grab some beer for the show, I have a nice view for the show.  Don't know how long before the show shows up at the door. 

"They have taken the bridge and the second hall. We have barred the gates but cannot hold them for long. The ground shakes, drums... drums in the deep. We cannot get out. A shadow lurks in the dark. We can not get out... they are coming." - Gandalf (reading)

Cognitive Dissonance's picture


Just trying to have a discussion here.

Have you ever considered that if we have nothing to offer (meaning hope of survival) to the people who are still asleep, then from a moral point of view we should just allow them to continue to sleep rather than awaken them just before the pick axe enters their forehead?

I'm not being sarcastic. But if all we can do is tell people they are doomed, why even wake them from their slumber? If most of them are going to die, what is more humane? To die before they experience shear and utter terror or to die while experiencing shear and utter terror?

This is a legitimate question that deserves to be discussed but never is. I would be interested in your answer. Thanks. 

hack3434's picture

 But if all we can do is tell people they are doomed, why even wake them from their slumber?


There is no point as most (depending on your own social sphere) people do not wish to deal with the fact that our socio-economic model has failed. Telling people that "they" are doomed doesn't do squat as most will write you off as gone crazy (From personal experience). Those that seek the truth shall look for it on their own just as many of us have.      

The Franchise's picture

Wrong. Fair value is what someone will pay for the S&P profit machine. Clearly that price is 1040, over and over and over and over again. Boy, that "someone" has some cash to put to work at that level.




Ragnarok's picture

Never had the pleasure, though I am more of a Rye Whiskey and Vodka kind of guy.


I'm still at work.... cheers!

The Franchise's picture

In the spirit (pun intended) of full disclosure, I myself enjoy a nice glass of the Goose with crushed ice, Seltzer water, and a lime, during these summer months. Very refreshing. Of course, it helps me wash down Uncle Sam's boot.

Agent P's picture

That's known as a Vodka Gimlet (if you're old school)...however, most bartenders have to get out the little red book if you order it that way, so sometimes it's just easier to go with your description.  Regardless, it's a damn fine cocktail.

Cursive's picture

Ever tried a Pimm's Cup?  Very refreshing for summertime.

DoChenRollingBearing's picture

The Bearing's favorite:

"Death After Midnight" (in the spirit of Heminway's Death in the Afternoon):

-- 5 parts berry flavored Vodka

-- 1 part Absinthe


PlausibleDenial's picture

Yes, to the Kava Gods.  Drink unitl numb....

Misean's picture


Bam_Man's picture

It should be obvious to everyone that keeping financial assets over-valued by 30%-50% is now "a matter of national security".

Mako's picture

Actually it's a matter of a few billion being liquidated, but humans have no ability to sustain the lie long-term, usually around a generation. 

chet's picture

Yeah, I agree.  I think that QE2 and another bailout of the states are inevitable.

While the idea of the "grand collapse" is dramatic, I think the scenario where we stumble along like Japan for 20 years going deeper into debt is the most likely.

That doesn't mean that stocks won't go sideways or drift downward during that time.  But I don't see a sudden collapse at this point. 

As you said, it's about "national security" now.  We've seen over the last year that the govt is willing to manipulate every market, take over the entire home-lending sector, assume the losses of countless companies.  They're willing to do whatever at this point.

kengland's picture

Where IS Nick L?

John McCloy's picture

Captured Bank politician Kanjorski says, "The Dow will fall to 2000 if this regulation bill is not passed"

Consider that a threat straight from the bankers mouth.Truly amazing blackmail.The banks love this bill.All they are afraid of now is it being strengthened. 

Muir's picture

O'Brien: What are your feelings towards Big Brother?
Winston Smith: I hate him.
O'Brien: You must love him. It is not enough to obey him. You must love him.

Assetman's picture

The Dow will fall to 2000 if FinReg IS passed.

What's the $#%^-ing difference, Old Man?

Lux Fiat's picture

Banks certainly don't want this thing shelved and taken up by the next congress.  Although if we get a bunch more Scott Brown types replacing existing incumbents, it won't make a difference.  Crunchy, populist coating on the outside; soft, chewy calamari center.

John McCloy's picture


Very true. If Feingold can get the ball rolling and more outspoken frightened pols begin to actually do what is in the best interest of the American populace (gasp) as opposed to the criminals who have been robbing us for years we may actually get somewhere. All Wall Street has is fear tactics. The market would crash but eventually they will be begging to have a job like the rest of the nation and they will fall into place like the transparent cowards they are. Only then will they be grateful they get to pass shells around for a living as opposed to digging ditches. 

A_MacLaren's picture

I saw him say that (on CNBS) and there was an evil flash in his eye as he glanced off camera.  I wonder at who or what?

He must have been channelling a whole host of the Wall St scum-suckers.


Missing_Link's picture

I find the market fascinating in that everything that is occurring to it, and in it, at the moment -- flash-trading-based manipulation by Goldman Sachs, manipulation by the Federal Reserve via the primary dealers, high-speed front-running / liquidity theft / volatility creation by high-frequency trading firms -- runs exactly counter to everything the market was built to provide in the first place.

The market was created to speak the truth, however painful it may be, and built to avoid the kind of corruption that could spring from the desire of any one party to unduly manipulate or control it.  Yet the current market participants seem to believe that their endless manipulation is a virtue and that by changing the market's tune, they can change the reality it tries to represent.

Changing the market will not change the truth.

SayTabserb's picture

I telly ya, TD, if you had two columns a week in the NYT, a condo in St Croix, and the luxury of typing out research-free bird cage liner while at a cafe in Luxembourg, you'd be getting a call from Stockholm too. NOBODY comes up with this stuff like you do. You're like a decoder ring for the whole nonsensical farce called the US economy.

TooBearish's picture

Oh no no why would one ever attempt to value stocks this way, everyone knows that low rates makes the EARNINGS YIELD on the stocks look incredibly and horribly cheap....

AlienTrader's picture

What fair value? The Fed and the government are in war mode against anybody who dares challange this phony recovery. And all is fair in stocks and war.

Lux Fiat's picture

"And all is fair in stocks and war."  So true.

P.S.  Love the avatar.  Had been thinking of ditching the bag a few weeks ago, and was out looking for a good side-profile "Alien" photo.  After numerous interruptions, it never made it back onto the priority list.

Misean's picture

"Bonds are implying where stocks should be almost to the dot, absent the $3.5 trillion pumped into stock by the administration and the Chairman."

That's the problem with bonds, they're just too damned polite. They need to be more like Bond and bitch slap the hell out of something...oh wait...thursday THIS WEEK!?!?!...hmmmmm

Muir's picture

James Bond. Allow me to introduce myself. I am Ernst Stavro Blofeld. They told me you were assassinated in Hong Kong.

Hansel's picture

Is this analysis comparing bond yields to S&P 'earnings'?  Accounting laws were abandoned a while ago.

tunaman4u2's picture

Honest question:
Conversely, whats the value of stocks as implied by the price of gold?

Pladizow's picture

How do you define "Fair"?

bob_dabolina's picture

Bear markets have a funny way of having these unexpected routs up in the final hour.

I think I'm gona put on some longs right here.

Last time this bullshit happened in 07/08 the market made thousand point rallies around this time.

It makes sense to be short, thats why I'm going long for a short term play. Close out at EOD

Vampyroteuthis infernalis's picture

I agree with you bob, this sell off is not impulsive in nature. Just as all human traders are driven out of the market, the algos will kick in and have a massive rally.