Arezi Ratio for Sep 19


*                         8/29     9/5      9/12     9/19/22
S&P 500 Index             4057.66  3924.26  4067.36  3873.33
Trailing 12 month PE      21.06    20.49    21.24    20.24
Trail Earnings yield      4.75%    4.88%    4.71%    4.94%
Forward 12 month PE       19.58    19.03    19.70    18.76
Fwd Earnings Yield        5.11%    5.25%    5.08%    5.33%
90 day tbill yield        2.89     2.94     3.08     3.20
10 year tbond yield       3.04%    3.20%    3.33%    3.45%
Arezi Ratio               0.61     0.60     0.65     0.65
Fed Ratio                 0.60     0.61     0.66     0.65

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 88%
stocks, 12% 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 58%.

An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 81%.

Elan

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