So you have the PE of stocks at 12.5. The PE of the ten year U.S. note, which is the inverse of the yield, of 3.25 percent is around 31 times. And the difference to me has never been that spread between a PE of stocks and the PE of the ten year US note has never been as wide.
Even if you use investment grade, Mike, that is yielding about six percent, it still has an effective PE of around 17 times.
HOLLAND: Very interesting. I think many of the listeners -
KASS: It's a different way of looking at it.
HOLLAND: - they will have heard that for the first time. They know that interest rates are low, that stocks seem to be reasonably valuable, but they would be saying I know stocks are kind of dangerous. But the idea of having fixed income being dangerous is something new to some people, and the idea of saying how expensive they are just in the way you did it, expressing it as a multiple, is I think very helpful. And I think to the extent that people can kind of get their heads around that, it will be helpful for them.
If they want to stick with fixed income, you and I both would tell them that at the very least own things that mature, own things directly because if you own a fund and Doug Kass' worst fears are born out - that interest rates go up and bond prices go down, - if you're in a fund you will end up simply losing money because it does not mature.
KASS: Right, and I actually - towards that end, I'm building up a very large position in an ETF at TBT, which is the inverse, which will go - will rise in price coincident with lower bond prices and higher yields.
HOLLAND: Okay, before - we only have one minute left, - I want to get one thing out of you before we leave you, before you leave us and that is your college's commencement was a few weeks ago. You received an honorary doctorate and -
KASS: You're making me blush, but it is radio.
HOLLAND: Well, yes, exactly right. And you gave a speech, which I actually saw on the internet and listened to and I want to hear the one thing that you said to those graduating seniors that you would want to share with the listeners.
KASS: I say the same thing to my two sons - stay hungry and stay foolish.
HOLLAND: Excellent. Doug Kass, thank you so much for joining us. That's Douglas Kass, Seabreeze Partners.
Coming up, stay with us. We'll speak with Brian Rogers, Chief Investment Officer at T. Rose Price. And I'm Mike Holland, Holland & Company, in for Tom Keene today. It's Bloomberg On the Economy.
