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Be careful. The market may be undervalued based on historical
earnings, but not on forecast earnings.
I think one of the reasons for the apparent bullish bias in the EYR
line right now is that S&P Earnings lag TBill yield and S&P Close
by several months. TBill Yield and S&P Close are current figures,
while S&P Earnings is historical information. As the poor earnings
environment is reflected more and more in the S&P Earnings figure
(ie. the denominator in your EYR formula will decline), the EYR
line will tend to return to the centre line. A more accurate
representation would be obtained by using forecast earnings,
which presumably is one factor investors use in determining a
"fair" S&P value.
It would be interesting to recalculate the figures by shifting S&P
Earnings backward by 6 or 12 months to simulate forecast earnings.
----- Original Message -----
From: "Earl Adamy" <eadamy@xxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Tuesday, December 11, 2001 6:42 AM
Subject: Re: [RT] S&P 500 TBill/EarningsYield
> Yes, there is no question that the graphic indicates that the market is
> grossly undervalued. My major problem with the graphic is that history
> begins in 1942 and thus does not include history for what I consider to be a
> comparable period of extreme valuations ... the 1920's. The other problem is
> the channel which has a strong bull market bias. Thus, I think that the
> chart is better at identifying extreme overvaluation than extreme
> undervaluation. Note the addition of the blue line at the bottom of the
> chart.
>
> I believe that absent some historically low PE's and dividend ratios, one
> needs to at least wait for the ratio to settle down in the lower end of the
> range.
>
> Earl
>
>
>
> ----- Original Message -----
> From: "Rakesh Sahgal" <rakeshsahgal@xxxxxxxxx>
> To: <realtraders@xxxxxxxxxxxxxxx>
> Sent: Tuesday, December 11, 2001 7:32 AM
> Subject: Re: [RT] S&P 500 TBill/EarningsYield
>
> > Earl,
> >
> > Going by the graphic can one safely assume, current market is grossly
> > oversold/undervalued? Or as you had mentioned in one of your earlier posts
> > the quality of reported earnings makes it necessary that this opportunity
> > be viewed with caution?
> >
> > Rakesh
> >
> >
> >
> > At 07:18 AM 12/11/01 -0700, you wrote:
> > >Someone here requested an update.
> > >
> > >Earl
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