Subject: Arezi Ratio for Aug 28
* 8/7 8/14 8/21 8/28/23
S&P 500 Index 4478.03 4464.05 4369.71 4405.71
Trailing 12 month PE 24.76 24.17 23.64 23.65
Trail Earnings yield 4.04% 4.14% 4.23% 4.23%
Forward 12 month PE 21.27 21.16 20.60 20.68
Fwd Earnings Yield 4.70% 4.73% 4.85% 4.84%
90 day tbill yield 5.54 5.54 5.55 5.61
10 year tbond yield 4.05% 4.16% 4.26% 4.25%
Arezi Ratio 1.37 1.34 1.31 1.33
Fed Ratio 0.86 0.88 0.88 0.88
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 54%
stocks, 46% cash this week.
Other timing indicators:
The S&P index is above its 200DMA. - Bullish
We are in the May-Oct part of the year. - Bearish
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 24%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 70%.
Elan