Arezi Ratio for Oct. 31

I normally do not publish the Arezi Ratio. It just that it recommends that one actually use margin! To me this should suggest a runaway bull with cash flowing out of savings and treasuries.

Personally I don’t buy it. I think we have an out of sample situation with the Government mucking with market forces.

*                         10/10    10/17    10/24    10/31/08
Trailing 12 month PE      17.86    18.59    17.71    18.49
Trail Earnings yield      5.60%    5.38%    5.65%    5.41%
Forward 12 month PE       18.60    19.36    18.59    19.54
Fwd Earnings Yield        5.38%    5.17%    5.38%    5.12%
90 day tbill yield        0.60     0.46     0.98     0.41
10 year tbond yield       3.84     3.99     3.63     4.00
Arezi Ratio               0.11     0.09     0.17     0.08
Fed Ratio                 0.71     0.77     0.67     0.78
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 116%
stocks, -16% cash this week.