Subject: Arezi Ratio for Aug 11
* 7/21 7/28 8/4 8/11/25
S&P 500 Index 6296.79 6388.64 6238.01 6389.45
Trailing 12 month PE 27.95 28.25 27.47 28.04
Trail Earnings yield 3.58% 3.54% 3.64% 3.57%
Forward 12 month PE 24.08 24.28 23.62 24.12
Fwd Earnings Yield 4.15% 4.12% 4.23% 4.15%
90 day tbill yield 4.40 4.42 4.35 4.32
10 year tbond yield 4.44% 4.40% 4.23% 4.27%
Arezi Ratio 1.23 1.25 1.19 1.21
Fed Ratio 1.07 1.07 1.00 1.03
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 59%
stocks, 41% 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 29%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 74%.
Elan