Arezi Ratio for Aug 1


*                         7/11     7/18     7/25     8/1/22
S&P 500 Index             3899.38  3863.16  3961.63  4130.29
Trailing 12 month PE      19.36    19.15    19.98    20.81
Trail Earnings yield      5.17%    5.22%    5.01%    4.81%
Forward 12 month PE       17.48    17.26    18.66    19.42
Fwd Earnings Yield        5.72%    5.79%    5.36%    5.15%
90 day tbill yield        1.98     2.37     2.49     2.41
10 year tbond yield       3.09%    2.93%    2.77%    2.67%
Arezi Ratio               0.38     0.45     0.50     0.50
Fed Ratio                 0.54     0.51     0.52     0.52

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 95%
stocks, 5% cash this week.

Other timing indicators:
The S&P index is below its 200DMA. - Bearish
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 normal. - Bullish

A composite allocation may start with the Arezi formula and subtract 10%
for each bearish indicator. The current target allocation is 65%.

An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 85%.

Elan

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