In the Peter Schiff Show on the 5th of April, Peter talked about how low the P/E ratios of the gold mines are, compared to the interest rate. He said: "the lower the interest rates are, the higher P/E ratios will be".
This correlation is intuitively correct. As the interest rate is low, you won't get any return by putting your money in treasuries or in the bank. So where do you put your money, if not in cash and bonds? You will put your money in the stock market where you get a higher return. That's why stocks will have a higher valuation and consequently a higher price. A higher price will result in a higher P/E ratio. Conversely, when interest rates are high, the P/E ratio will be low.
For example: if the interest rate were 15% like in year 1981, investors will likely put their money in bonds with a 15% return per annum, rather than putting their money in risky stocks.
To show this correlation I will give historical evidence and show why Gold Miners are very cheap.
Go here to check out my analysis.
- List of Correlations
- Gold Checklist
- Copper Checklist
- Gold Forecaster
- Oil Forecaster
- Stock Forecaster
- Bond Forecaster
- USD Forecaster
- Poo Forecaster
- Bitcoin Checklist
- Q Ratio
- Stock Valuation
- Leading/Coincident Indicator
- Misery Index
- Junk Bonds Vs. Stocks
- Currency Vs. Bonds
- Yield Curve Vs. Fed Funds Rate
- U.S. Bond Yields
- Dividend Yield Vs. Bond Yield
- QE Vs. Bond Yields
- Money Supply
- Dow Theory
- Excess Reserves
- Central Bank Balance Sheets
- Fed Balance Sheet Vs. Dow Jones
- Credit Spread Vs S&P
- Total credit Vs. Dow Jones
- Debt
- Debt Vs. Delinquency
- % Debt Held by Foreigners
- Interest Payment on Government Debt
- Disposable Income Vs. Housing
- Retail Sales Vs. Disposable Income
- Tax Revenue Vs. Stocks
- Tax Revenue Vs. Savings Rate
- NIIP Vs. Currency
- Trade Balance Vs. Currency
- Deficit
- Deficit to Outlay Ratio
- China Power Consumption Vs. China GDP
- Freight Vs. GDP
- Inventory Vs. GDP
- PCE Vs. GDP
- GDP Vs. Trade Balance
- GDP Vs. 10 Year Bond Yield
- GDP Vs. PMI
- Profits Vs. Employment
- Employment-Population Ratio Vs. Wages
- Employment-Population Ratio Vs. GDP per Capita
- Unemployment Vs. GDP
- Part-time Employment
- Productivity Vs. CPI
- Output Gap Vs. CPI
- Taylor Rule Rate Vs. Gold
- PPI/CPI/PCE
- Retail Sales Vs. CPI
- 2 Year Vs. LIBOR/SOFR Vs. Fed Funds Rate
- Loan Growth Vs. Fed Funds Rate
- Fed Funds Rate Vs. CPI
- Fed Funds Rate Vs. Unemployment
- Delinquencies Vs. Unemployment
- Delinquency Vs. Fed Funds Rate
- Labor Force Vs. Unemployment
- Non-Farm Payrolls Vs. Unemployment
- Quits Rate Vs. Wage Inflation
- Wage Inflation Vs. Unemployment
- Wage Inflation Vs. CPI
- M1 Vs. CPI
- Capacity Utilization Vs. CPI
- Capacity Utilization Vs. Unemployment
- New Homes Vs. Rents
- Lumber Vs. Housing
- Savings Vs. Housing
- Housing Starts Vs. Unemployment
- Initial Jobless Claims Vs. S&P
- Consumer Sentiment Vs. S&P
- Durable Goods Orders Vs. S&P
- Building Permit Vs. Housing
- Construction Vs. Housing
- Adjustable Mortgage Vs. Fed Funds Rate
- Fixed Mortgage Rates Vs. 30 Year Bond Yield
- MZM Vs. 10 Year Bond Yield
- Gold Vs. 10 Year Bond Yield
- Dow/Gold Ratio
- GOFO Vs. Gold
- Gold/Silver COMEX
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