Or a better question is : when will sell my dividend stocks?
Although the Shiller PE ratio and Buffet’s Market Cap to GDP ratio shows that the stock market is now overvalued, I am not selling my stocks yet. I am expecting about 1-2 years of optimism before its dies of euphoria. I feel like now is like 2006, with market still yet to climb to 2007 levels. But whats is my main indicator to tell me to exit? Its the bond yield curve.
The above bond chart on the left shows normal or upward sloping yield curve. Look at mainly the 2Y and 10Y rates. It reflects that long term rates involve greater risks, and therefore the rates are higher. This builds in inflation expectation and occurs during economic expansion.
- Flat yield curve occurs during the transition between recession and expansion. This will be the time to start selling.
- Inverted or downward sloping yield curve reflects that rates are expected to fall and so long term are lower than short term rates. This happens when inflation is not expected and occurs when economy is expected to slow or enter recession. I should have finished selling my dividends stocks by this time.
http://stockcharts.com/freecharts/yieldcurve.php is a great site to monitor the US bond yield curve, and https://asianbondsonline.adb.org/singapore.php is a good site to monitor the Singapore bond yield curve.
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