Bonds Remind Us That Stock Valuation Still Matters
Most investors are looking for a cash-on-cash return. They put their hard-earned cash into a stock and want a shot at receiving a decent-sized earnings stream or dividend stream within some reasonable amount of time. This cash-on-cash return framework reminds us of the importance of default-free government debt yields that are available. If these yields spike higher, then the willingness to hold the most speculative, lowest cash-on-cash return stocks can fall sharply.