RG,
I won't sleep well until long-bond yields go back down, which may be awhile...
Yeah, with the long end at 6.53% versus 6.21%, I have found that The Market, according to my comprehensive, predictive model, is approximately 14.27% overvalued here.
Moreover, my discounted cash flow model for LRCX gives me very mixed signals as once the long end edges above the 6.47% level.
This is more disconcerting given the simplicity of my company specific modeling. My methodology is straightforward:
--I build out LRCX's after-tax cash flows for a modest 50 years.
--To discount these predictable flows, I use the long bond as my risk free rate.
--I apply a negative risk premium to the market of the (1.0275*CPIcore -((1+LIBOR ^.5)-1)).
--I assume that LRCX, over that span, is no riskier than The Market (as defined by a blend of the S&P500, the Wilshire 5000, TheStreet.com Internet Index, and a proprietary basket of bonds that is heavily weighted toward David Bowie asset backed bonds and Harvard Pilgrim Healthcare Receivership Notes).
Using this technique, the with the long end at 6.47%, LRCX is worth $1.43/share. When I last worked through the calculation (long end at 6.31%), LRCX was worth $859.23/share.
I can't believe the Bills are not starting Flutie. I am now routing for the Titans.
<g>
--Duker, he of too much coffee ...
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