Subject: Arezi Ratio for Mar 23
* 3/2 3/9 3/16 3/23/26
S&P 500 Index 6878.88 6740.02 6632.19 6506.48
Trailing 12 month PE 27.07 26.44 25.93 25.33
Trail Earnings yield 3.69% 3.78% 3.86% 3.95%
Forward 12 month PE 22.97 22.46 22.04 21.55
Fwd Earnings Yield 4.35% 4.45% 4.54% 4.64%
90 day tbill yield 3.67 3.69 3.72 3.74
10 year tbond yield 3.97% 4.15% 4.28% 4.39%
Arezi Ratio 0.99 0.98 0.96 0.95
Fed Ratio 0.91 0.93 0.94 0.95
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 73%
stocks, 29% cash this week.
Other timing indicators:
The S&P index is below its 200DMA. - Bearish
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 53%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 82%.
Elan