Arezi Ratio for May 30


*                         5/9      5/16     5/23     5/30/22
S&P 500 Index             4123.34  4023.89  3901.36  4158.24
Trailing 12 month PE      20.66    20.03    19.54    20.85
Trail Earnings yield      4.84%    4.99%    5.12%    4.80%
Forward 12 month PE       18.60    17.47    17.84    18.94
Fwd Earnings Yield        5.38%    5.72%    5.61%    5.28%
90 day tbill yield        0.85     1.03     1.03     1.08
10 year tbond yield       3.12%    2.93%    2.78%    2.74%
Arezi Ratio               0.18     0.21     0.20     0.22
Fed Ratio                 0.58     0.51     0.50     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 109%
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 79%.

An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 93%.

Elan

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