Currently:

10 year bond: 2.98%  (14 month low)

5 year bond: 1.79%  (all time low)

2 year bond: 0.61%

If I remember correctly, between the fall of 2008 and the spring of 2009 (when the credit crunch was at it's worst), the 10 year was @ 3%; the 5 year was @ 2%; and the 2 year was @ 1%.

What is the bond market telling us?  Is the bond market predicting another near term market meltdown?

Personally, I have been skeptical of the recovery. From the articles I have read in the WSJ there just seems to be too many areas of the economy that are having problems. (Mortgages, Biz loans, pensions, jobs, state budgets, etc.)

Personally, I have been wary of predicting any kind of recovery in my SSG's. I have always chosen the lowest P/E multiples (or close to the lowest) from not only the past fives years; but, over the past 10 years. I have also used the recent market low prices (either September 2008 or March 2009) for my low price on my SSG's.

I know the effect that inflation has on P/E ratios. I am concerned about future inflation with the current level of money supply.

What effect does deflation have of P/E's?  Does deflation deflate P/E ratios as well?

Personally, I think this is a time to be very very conservative when applying judgements on the SSG.

Nick

Please explain in more detail

Steve: Thanks for your chart regarding P/E's and the effects of Inflation and Deflation. It seems from the chart the the effect of Inflation on P/E is more apparent; whereas Deflation is more insidious.

Jack: I too own real estate that I rent - in New York State. I have had a house to rent on the market for 6 months. I had 15 showings; and, yet no one qualifies. All prospective tenants complain about the rent being too high; yet, I can't reduce the rent because the biggest expense are my taxes.  Having read several articles in the WSJ, I think it's going to take another 10 years before there is any improvement in the real estate market. The biggest problem is the shadow inventory of foreclosed (or soon to be foreclosed; and, delinquent) properties. (There was a great article by Floyd Norris in the NYTimes earlier this year regarding R/E securitization and the building of the Waldorf Astoria Hotel. The Waldorf Astoria issued it's prospectus for investor financing on September 1st, 1929. The investors could not get anyone to buy out their investment until 1942 when Conrad Hilton began buying up the Waldorf bonds for less then 5 cents on the dollar!!!  The investor's had to wait 12 years before they were relieved of their financial burden - and they lost more then 95% of their investment.)

I am definitely looking at stocks over real estate right now.  But, I am being very conservative and cautious.

Regards

Nick