Arezi Ratio for Aug 22


*                         8/1      8/8      8/15     8/22/22
S&P 500 Index             4130.29  4145.19  4280.15  4228.48
Trailing 12 month PE      20.81    20.87    22.31    22.04
Trail Earnings yield      4.81%    4.79%    4.48%    4.54%
Forward 12 month PE       19.42    19.82    20.74    20.45
Fwd Earnings Yield        5.15%    5.05%    4.82%    4.89%
90 day tbill yield        2.41     2.58     2.63     2.74
10 year tbond yield       2.67%    2.83%    2.84%    2.98%
Arezi Ratio               0.50     0.54     0.59     0.60
Fed Ratio                 0.52     0.56     0.59     0.61

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 90%
stocks, 10% 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 60%.

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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