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The attached historical chart is updated weekly from Barron's. I think it makes
the same strong case that the market is historically overvalued. Interestingly,
the TBill/SP Earnings Yield ratio is used as a key component in many long term
timing models, and is especially valued by quants such as ElaineG. I have such a
model which back tests over 50+ years with only 1 losing trade (very small loss)
and that model exited the market about 2 years ago. This doesn't tell us that
the market is wrong, but it does tell us that the market has shifted from an
investor's market to a trader's market. Ultimately, the probabilities are high
that the Yield ratio will return to normal (or overshoot to well below normal)
leaving the buy and hold crowd in deep dodo.
Earl
-----Original Message-----
From: Gary Funck <gary@xxxxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Date: Saturday, March 07, 1998 11:30 PM
Subject: S&P Earnings Update - March 1998
>Executive summary:
>
> - inflation remains low, employment high
> - real 12-month trailing S&P earnings growth _dropped_ to a rather
> tepid 1%, which breaks a trend of +10% real EPS growth established
> a year ago. (the 10-yr median is 10.2%).
> - S&P valuations are high with a P/E of 26.5. This is the highest
> P/E for the S&P in the past 38 years in my data sample.
> - S&P dividend rate (1.5%) is at an all-time low
> - the real year-over-year return on the S&P is 32%.
Attachment Converted: "c:\eudora\attach\SPYIELDS.gif"
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