Subject: Arezi Ratio for Feb 23
* 2/2 2/9 2/16 2/23/26
S&P 500 Index 6939.03 6932.30 6836.17 6909.51
Trailing 12 month PE 27.93 27.80 27.11 27.30
Trail Earnings yield 3.58% 3.60% 3.69% 3.66%
Forward 12 month PE 23.44 23.42 22.95 23.14
Fwd Earnings Yield 4.27% 4.27% 4.36% 4.23%
90 day tbill yield 3.67 3.68 3.68 3.69
10 year tbond yield 4.26% 4.22% 4.04% 4.08%
Arezi Ratio 1.02 1.02 1.00 1.01
Fed Ratio 1.00 0.99 0.93 0.94
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 70%
stocks, 30% 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 60%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 90%.
Elan