Arezi Ratio for Mar 14


*                         2/21     2/28     3/7      3/8/22
S&P 500 Index             4348.87  4384.65  4328.87  4204.31
Trailing 12 month PE      21.94    22.41    22.06    21.42
Trail Earnings yield      4.56%    4.46%    4.53%    4.67%
Forward 12 month PE       20.24    20.89    20.40    19.78
Fwd Earnings Yield        4.94%    4.79%    4.90%    5.06%
90 day tbill yield        0.35     0.33     0.34     0.40
10 year tbond yield       1.92%    1.97%    1.74%    2.00%
Arezi Ratio               0.08     0.07     0.07     0.09
Fed Ratio                 0.39     0.41     0.36     0.40

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 116%
stocks, -16% cash this week.

Other timing indicators:
The S&P index is below its 200DMA. - Bearish
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 96%.

An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 107%.

Elan

14 Likes