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Strategies & Market Trends : Tech Stock Options
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To: donald sew who wrote (52709)9/16/1998 12:08:00 AM
From: Nancy  Read Replies (1) of 58727
 
Donald,

Greenspan first said that irrational exurberance back in Dec 1996 when DOW was around 6200 BUT the 30-yr bond yield is close to 7% - you need to use bond yield to figure out the valuation of this market - with bond yield at 5.25%, DOW can be at 7500 being fairvalued when dividend is factored in. Valuation is a relative measure not an absolute calc.

Greenie's model is using the inverted earnings to calc the "yield" of stock and compare it to the 10-year note. Stock should "yield" a 1/2 percentage to 1 percentage higher to compensate the risk. You can check out WSJ or Barron to get the "earnings" of DOW or SPX to calc the "yield", dont forget to throw in the dividend too.

of course, whether these earnings remain true going into next 6-12 months is an important consideration. If Econ slows down, it wont, and Greenie will lower rate to prevent us fall into a recession.
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