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Strategies & Market Trends : A.I.M Users Group Bulletin Board

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Condo

Zen Dollar Round

To: OldAIMGuy who wrote (18655)	9/22/2020 10:23:20 AM
From: OldAIMGuy	2 Recommendations of 18928

We'll have to see if Q3 earnings help at all, but at this point earnings are not keeping up with share price gains. There are only two ways we drop out of bearish range right now: 1) P/Es drop because share prices drop or 2) P/Es drop becaues earnings move upward faster than share prices. "Risk free rate of return" represented by the 13 Week Treasury Rate is as low as it can go without going negative. Further, I don't see inflation retreating any time soon. My Relative Valuation Index uses Value Line's P/E (published weekly) with the larger of either ST interest rates or CPI Inflation - the sum of which shows where this index is situated The March, 2020 call was excellent on the Bullish side. It's been 13 weeks since the RV index turned bearish. Since then markets have moved slightly higher but with increased volatility and downside risk potential. It was Elaine Garzarelli who first showed the relationship between P/E and ST Interest rates. That was on the old PBS show "Wall $treet Week" back in 1987. She discussed the "magic number" of 20 being what was market neutral. Anything much above was bearish and below was bullish. I had similar data so built my own version shown here. Data in my spreadsheet starts in 1982 and gives a median value of 19.9, so is very similar to Ms. Garzarelli's effort. Best wishes, OAG Tom

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