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Thought this might be of interest. 

John



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Subject: Market Safety Index
Date: 08/30/2002 11:54pm
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To: JVC689@xxxxxxx
Subject: Market Safety Index
From: jcappello1@xxxxxxxxxxx
Date: 08/30/2002 11:54pm

Market Safety Index
 
       
     

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       Market Safety Index  
        
 
      Market Safety Index
      We use the Market Safety Index (MSI) as an indicator of the market's condition. Its main purpose is to tell us whether the market is overvalued or undervalued. We compute the MSI by taking the difference between an extrapolated SP500 earnings yield and the current 90-day TBILL discount interest rate. The extrapolation is 13 weeks and computed with a constrained quadratic least-squares fit of the preceding 52 weeks of earnings. A MSI value greater than zero means that the equities yield is higher than the TBILL yield and the market is undervalued. A MSI value less than zero implies that the equities yield is lower than the TBILL yield and the market is overvalued. In terms of return and risk, a large positive value would favor stocks as an investment. A large negative value would favor less risky investments, such as TBILLs. If you look at plot of the MSI over the past it is easy to pick out the 1987 crash and the 1990 mini-crash. In both cases, stocks fell in value and the MSI abruptly went from a large negative number to a positive one. Using these two events, it appears that when the MSI is less than negative 2.0, the market is extremely overvalued and is vulnerable to a crash. We ignore our market forecast and remain in CASH when the MSI is less than negative 2.0. The MSI graph shown below includes the most recent data. Draw your own conclusion as to the condition of today's market.




       

      We will update the Index every weekend or as market conditions warrant. The date of the last update is shown in the graph.


      Go to our home page. 

       
     




 


 
 
 






        

 


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Title: Market Safety Index



 

<IMG height=2 
src="http://www.markettrak.com/cgi-bin/count/addentry.cgi?page=msi&z=a0802"; 
width=2> 


  
  
    
      
      
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Support this site by 
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     Market Safety Index 
  

  
  
     <IMG 
height=10 src="http://www.markettrak.com/s.gif"; width=3> 

  
  
    
      Market Safety Index
      We use the Market Safety Index (MSI) as an 
      indicator of the market's condition. Its main purpose is to tell us 
      whether the market is overvalued or undervalued. We compute 
      the MSI by taking the difference between an extrapolated SP500 earnings 
      yield and the current 90-day TBILL discount interest rate. The 
      extrapolation is 13 weeks and computed with a constrained quadratic 
      least-squares fit of the preceding 52 weeks of earnings. A MSI value 
      greater than zero means that the equities yield is higher than the TBILL 
      yield and the market is undervalued. A MSI value less than zero implies 
      that the equities yield is lower than the TBILL yield and the market is 
      overvalued. In terms of return and risk, a large positive value would 
      favor stocks as an investment. A large negative value would favor less 
      risky investments, such as TBILLs. If you look at plot of the MSI over the 
      past it is easy to pick out the 1987 crash and the 1990 mini-crash. In 
      both cases, stocks fell in value and the MSI abruptly went from a large 
      negative number to a positive one. Using these two events, it appears that 
      when the MSI is less than negative 2.0, the market is extremely overvalued 
      and is vulnerable to a crash. We ignore our market 
      forecast and remain in CASH when the MSI is less than negative 2.0. 
      The MSI graph shown below includes the most recent data. Draw your own 
      conclusion as to the condition of today's market.<IMG height=10 
      src="http://www.markettrak.com/s.gif"; width=3>
      
      
      
       
      
      
      We will update the Index every weekend or as market conditions warrant. 
      The date of the last update is shown in the graph.<A 
      href="http://www.markettrak.com/index.html";>Go to our home page. 
     
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