Arezi Ratio for Aug 15


*                         7/25     8/1      8/8      8/15/22
S&P 500 Index             3961.63  4130.29  4145.19  4280.15
Trailing 12 month PE      19.98    20.81    20.87    22.31
Trail Earnings yield      5.01%    4.81%    4.79%    4.48%
Forward 12 month PE       18.66    19.42    19.82    20.74
Fwd Earnings Yield        5.36%    5.15%    5.05%    4.82%
90 day tbill yield        2.49     2.41     2.58     2.63
10 year tbond yield       2.77%    2.67%    2.83%    2.84%
Arezi Ratio               0.50     0.50     0.54     0.59
Fed Ratio                 0.52     0.52     0.56     0.59

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 91%
stocks, 9% 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 61%.

An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 82%.

Elan

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