Ken Fisher, Forbes columnist and founder of a $39 billion fund, thinks the market is undervalued by 40%. "The earnings yield (the inverse of the P/E rati0) for the S&P 500 is 6.7%. Companies can borrow at 3.8% after tax and buy back shares yielding 6.7%. At nearly 3%, this spread is historically huge."
This is the driver of all the share buybacks and private equity activity we've been seeing recently. As long as this spread persists, leverage will be the weapon of choice. Read the whole thing.
http://members.forbes.com/forbes/2007/0521/035.html
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