Subject: Arezi Ratio for Dec 30
* 12/9 12/16 12/23 12/30/24
S&P 500 Index 6090.27 6051.09 5930.85 5970.84
Trailing 12 month PE 29.41 29.13 28.46 18.64
Trail Earnings yield 3.40% 3.43% 3.51% 3.49%
Forward 12 month PE 24.58 24.34 23.78 23.95
Fwd Earnings Yield 4.07% 4.11% 4.20% 4.17%
90 day tbill yield 4.42 4.34 4.34 4.31
10 year tbond yield 4.15% 4.40% 4.52% 4.62%
Arezi Ratio 1.30 1.26 1.23 1.23
Fed Ratio 1.02 1.07 1.07 1.11
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 58%
stocks, 42% 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 normal. - Bullish
A composite allocation may start with the Arezi formula and subtract 10%
for each bearish indicator. The current target allocation is 48%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 83%.
Elan