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Strategies & Market Trends : Waiting for the big Kahuna

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To: Stcgg who wrote (48592)	9/24/2000 5:19:43 PM
From: William H Huebl	Read Replies (1) of 94695

SCYR - Stocks to Cash Yield Ratio. It is an absolutely miserable indicator used as the orignal author intended it. However, if you give it that old Einsteinian twist on it and look at it RELATIVELY it is of great benefit. Here is how I calculate it: I take the earnings and dividends on the S&P500 and add them together and divide by the yield on the 13 week coupon treasury. I get the figures weekly in Barron's. The original author suggested you use the S&P Industrials instead and his rules suggested that 1.21 was the boundary.... over 1.21 and you should be in stocks/mutual funds and below that you should be in cash equivalents. And he calculated it once a month at the beginning. Well that worked pretty good until this "...this time it's different..." thing got started and it blew away many time-honored indicators including this one. I backtested it back to the early 1940s thanks to data supplied by another SI member and it work well "relatively" and using data from the S&P500. My experience with it has been over a 5 year time-frame where it went as low as around 1.0 (this year under that, of course) and then, during the 97 (?) sell-off moved up to 1.51. It has been mainly under that 1.21 figure for many, many years and you would have missed most of this bull market had you used the original author's implementation. I keep it posted weekly and note when it gets near the lower end (.67 now - .70 was the previous low set last month) and know that in that territory, bad things happen to Mr. Market. As it gets further and further away from that low, I acknowledge that investors may try to push it back down again by pumping up the market. The way I explain what it means is that at 1.0 it is a flip of the coin whether you will make more money in coupon T-bills or equities and at .67, it means you will make 1/3 MORE in T-bills than in equities. The caveat, of course, is that those who use it are not top stock pickers or have premier mutual funds which ALWAYS do better than interest accounts. But let me say this... I made over 6% in the past year and slept at night where I believe most investors in mutual funds or in individual stocks have had several sleepless periods. And for those getting within 5-10 years of retirement, that can be REALLY important! Not only for their sleepless nights, but for what they will have to retire with!

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