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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club
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To: Kirk © who wrote (2295)11/28/1998 3:32:00 PM
From: MrGreenJeans  Read Replies (2) of 15132
 
Barron's / S and P 500 Valuations

1. An excellent article in Barron's, dated November 30th, 1998, called Global Warning. It is an interview with Lawrence Lindsey former Federal Reserve Board Governor. Please note his comments on equity valuations. You do not have to agree with him but do not dismiss him. He was on the Board and is friends with Alan Greenspan. His perspective should give one more insight.

2. The S and P is currently at 1192.33:

Based on 1998 earnings the price earnings ratio works out to, (1192.33 / $49 estimated 1998 earnings on the S and P 500), 24.33xs or very close to the record price earnings levels we saw this past summer.

Based on 1999 earnings the price earnings ratio works out to, (1192.33 / $51.50(?) estimated 1999 earnings on the S and P 500), 23.15xs still pretty close to the 24.5 price earnings ratio achieved or thereabouts over the summer depending on what one assumes for earnings on the S and P 500.

My conclusion is, though I am still bullish based on 3 rate cuts in 7 weeks, if one took profits in here, let's say in tax deferred accounts with no tax implications, based on the fact that we are probably at the upper end of the price earnings ranges for 1998 and 1999, it would probably be a wise idea. The market has risen like a shot these past 6 weeks and I have to believe the market will pullback somewhat on its way to even new record highs. I think this may be a good time to take some profits. For the record I quietly raised some cash on Friday.

Comments always welcome.
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