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If you want to check in on another study of the "risk" index check out
http://homepages.together.net/~wbarnes/stockmarket.htm. One argument
against the wbarnes analysis is it is based on trailing earnings. Ron
makes a good point about sustaining such growth rates, and if the growth
was to slow or flatten out that premium would be taken out of stock
valuations pretty fast. Some international bluechips are experiencing this
now. On a year over year comparison(252 trading days) it does look like
history is repeating itself at least pattern wise. The relative volatility
is just a simple formula of 100*(VIX close - VIX Lowest Low in 252
days)/(VIX Highest High - VIX LowestLow in 252 days). The lower plot is
like Ron's Z score but based on a 252 day period and applied to the INDU.
The combination of price pattern and implied volatility would lead one to
conclude that cash is an attractive alternative at this point.
BobR
At 02:30 PM 7/17/1999 -0400, Ronald McEwan wrote:
>I ran this off this morning. I wanted to see how we stand on earnings for
>the S&P 500 versus the yield on the 30 year bond. I simply subtracted the
>earnings yield from the 30 yr bond yield and plotted it against the close
>for the S&P. While this is obviously no great surprise, I thought it
>worth while to mention. My opinion, in light of the recent rate increase,
>is that while earnings have been the star performer they will not be able
>to sustain this level of growth. Of course the Fed could lower interest
>rates and then we will be off to the wild blue yonder.
>
> On another note. I have attended some meetings on the upcoming
>demobilization project. (all securities will be quoted in decimals). I
>would not recommend upgrading any trading equipment until this is all
>figured out. Wall street is quite concerned over the ability to carry
>this off. Mostly everybody is trying to make the CBOE and the rest of the
>options industry the scapegoat. Whenever there is a problem it is pretty
>safe to blame it on the derivative guys. Well you have to point a finger
>at someone! The next few years will bring some staggering changes to the
>wild world of investing.
>
>Ron McEwan
>
>
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>
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