Subject: Arezi Ratio for Dec 11
* 11/20 11/27 12/4 12/11/23
S&P 500 Index 4514.02 4559.34 4594.63 4604.37
Trailing 12 month PE 23.74 23.92 24.08 24.02
Trail Earnings yield 4.21% 4.18% 4.15% 4.16%
Forward 12 month PE 20.88 21.04 21.07 21.07
Fwd Earnings Yield 4.79% 4.75% 4.75% 4.75%
90 day tbill yield 5.50 5.54 5.43 5.44
10 year tbond yield 4.44% 4.47% 4.22% 4.23%
Arezi Ratio 1.31 1.32 1.31 1.31
Fed Ratio 0.93 0.94 0.89 0.89
The Arezi Ratio is the 90 day tbill yield divided by the trailing
earnings yield of the S&P500. A low ratio means that stocks are undervalued.
The 'Fed Ratio' is the 10 year treasury bond yield divided by the
forward estimated operating earnings yield of the S&P500. A low ratio
means that stocks are undervalued. Thus, a ratio of 0.71 for example
means, according to Yardeni, that stocks are cheaper than 'fair value'
by 29%.
The 'S=120-50*Arezi Ratio' formula indicates an allocation of 55%
stocks, 45% cash this week.
Other timing indicators:
The S&P index is above its 200DMA. - Bullish
We are in the Nov-Apr part of the year. - Bullish
The trailing PE ratio of the S&P is above 17. - Bearish
The treasury yield curve is inverted. - Bearish
A composite allocation may start with the Arezi formula and subtract 10%
for each bearish indicator. The current target allocation is 35%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 81%.
Elan